Rybczynski's theorem: meaning and consequences

Since the birth of world trade, economists-theorists have tried to study all the processes of relations from the point of view of science. They, like physicists, discovered new theorems and explained the situations leading to the decline or recovery of the economy of a particular country. The peak in the development of international relations fell on the period of capitalization and the reshuffling of forces in the world community, precisely in the post-war period. In this regard, many theories have appeared, among them the theorem of Rybchinsky. Briefly and understandably try to state the essence of this article.

Sources of origin

A young English student. Rybchinsky in the 45-50s of the last century studied the influence of industry on the country's economy. In those years, international relations successfully developed, and England was one of the leading countries in the export of goods. The main direction, which studied Rybchinsky, was the theory of Heckscher Olin. According to her postulates, the country exports only those goods for which it has enough of its resources, and imports those that need it most. It would seem that everything is logical. But in order for the theory to work, it is necessary to take into account the conditions for the emergence of international exchange:

1. There are at least two countries, one of which has production factors in excess, and the other is experiencing a deficit.
2. Pricing occurs at the level of comparison of factors of production.
3. Mobility of factors of production, that is, the existence of the ability to move them (for example, a piece of land, can not be transported).

After analyzing the development of some countries in the last century, the young student derived his theory. Thus the theorem of Rybchinsky arose. The period of its origin fell just at the time of the rise of the capitalist countries and the decline of the Third World countries.

The formulation of Rybczynski's theory

So, it's time to formulate what the essence of the theory of the English economist is. He argued that if there are only two factors for the production of goods, and if you increase the use of one, it will entail a decrease in the production of goods due to the second factor.

Explanation

At first glance, it seems that Rybczynski's theorem is very confused. Let's briefly outline the main point. Imagine two enterprises. One produces computers for which a lot of capital is needed, and the money is in abundance. Another grows grain, for which he also has enough resources, mainly at the expense of labor. The first firm exports computers and, thanks to a high price, is increasingly increasing its capital, demand is growing and all the forces are mobilized only for the production of machinery. At the same time, money for the production of grain is becoming less and less, labor is moving to a more profitable industry, and the firm is degrading.

Drawing a graph

Rybczynski's theorem asserts that the ratio of factors towards their decrease or increase will always influence the final result of production, regardless of whether a particular industry or the economy of the country as a whole is considered. Consider the graph.

Again, on a concrete example, we will understand how the factors of production increase or decrease depending on demand. According to the data, there are two goods X and Y. For the former one needs capital, for the second - labor. The first OF vector shows which optimal ratio of labor and money is needed to produce the product X with increasing demand. Similarly, for the Y product, which the OE vector displays. The graph shows the point G. These are country resources. That is, there is a certain stock of capital (GJ) and labor (OJ). To meet the country's needs, goods X and Y are produced in the volume, respectively, of F and E.

Rybczynski's theorem is based on an increase in one of the factors. Let's say it's capital. Now, to make a new volume of goods Y (for export), you need more financial investments, which is exactly G ₁ . The quantity of goods will be moved to the point E ₁ and increases by a segment of E ₁ . At the same time, the capital for the commodity X will be short, and, therefore, the production falls on the gap FF ₁ . Note that the distance GG _{1 is} much less than EE1. This means that even a small transfer of one of the factors (in this case, capital) to the export-oriented sector leads to a disproportionate increase in the number of goods produced.

"Dutch Disease"

Rybchinsky's theorem in the long run can lead not only to the decline of a particular industry, but also to a reduction in the economic potential of the whole country. There are examples in the world practice when wrong priorities led to an increase in inflation, an increase in the exchange rate and a decrease in GDP. This effect was called "Dutch disease".

Its name "virus" picked up from the Netherlands. It was there in the mid-seventies of the last century that the first crisis situation occurred.

Approximately during this period the Dutch discovered large reserves of natural gas in the North Sea. They began to pay great attention to the extraction and export of the resource. It would seem that in this situation, the country's economy should have grown, but the situation was quite the opposite. The rate of the Dutch currency was growing, with the increase was rapid and very high, and the export of other important goods was increasingly decreasing.

Consequences of the "Dutch disease"

The reason for this was the outflow of resources from the production branches of old goods to gas production. The more demand grew, the more investments were required. The extraction of a valuable resource required money, labor, technology. About the export goods of other areas have forgotten, focusing on one thing. As a result, the exchange rate has grown, which means that the country's competitiveness has decreased.

Rybczynski's theorem proves once again that the problems of redistribution of resources can arise both in the country's domestic and foreign trade. Many countries have been ill with the Dutch disease. A huge crisis happened to Colombia after the growth of demand for coffee. The virus and the advanced European powers did not pass. Successfully healed Britain, France, Norway.

Japanese economic miracle

Another example is Japan. This small island country in the 60s of last century surprised the whole world with a rapid jump in the economy. Rybczynski's theorem worked here, but only with a positive effect.

All states can be conditionally divided into raw materials and industrial ones. Some export to the world market mainly products that will become raw materials for goods in another camp. Such states have a lot of workforce, but incomes are low. Another type of trade is the exchange of finished products. As a rule, states that trade in industrial goods have capital and technology available. Due to the fact that the first category has to buy more expensive products from the second, the latter live well.

This principle was used by Japan. In her small territory, it is impossible to grow anything. Resources, too, almost none. All that is is a small industrious and persistent people. Thanks to the discoveries in the computer field, the spheres of oil and gas processing and the chemical industry, Japan was able to establish its economy in such a way that, by buying cheap raw materials, they processed it, and produced expensive finished products on the world market.

Conclusion

Rybczynski's theorem is an extended version of Heckscher-Olin, according to which the country exports goods for the manufacture of which a surplus resource is required, and imports finished products, which it can not do. Economists are confident that with the expansion of exports of those goods that have already been on sale, the import of those already bought will disproportionately increase. And vice versa. If we focus on importing the missing resources, then in the long run the demand for imports will decrease.