Rybchinsky's theorem: meaning and consequences

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:43

Since the dawn of world trade, theoretical economists have tried to study all the processes of relations from the point of view of science. They, like physicists, discovered new theorems and explained situations that lead to the decline or rise of the economy of a particular country. The peak of the development of international relations fell on the period of capitalization and the reshuffling of forces in the world community, just in the post-war period. In this regard, many theories have appeared, among which the Rybchinsky theorem. Briefly and clearly we will try to state the essence in this article.

Sources of origin

Young English student T. M. Rybchinsky in the 45-50s of the last century studied the influence of industry on the country's economy. In those years, international relations were successfully developing, and England was one of the leading countries in the export of goods. The main direction that Rybchinsky studied was the theory of Heckscher Ohlin. According to its postulates, the country exports only those goods for the production of which it has enough of its own resources, and imports those that it needs most. It would seem that everything is logical. But forIn 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 an abundance of factors of production, and the other is experiencing their deficit.
2. Pricing occurs at the level of matching factors of production.
3. Mobility of factors of production, that is, the existence of the possibility of moving them (for example, a piece of land cannot be moved).

After analyzing the development of some countries over the past century, a young student came up with his theory. This is how the Rybchinsky theorem arose. The period of its emergence fell just at the time of the rise of the capitalist countries and the decline of the Third World countries.

Formulation of Rybchinsky's theory

So, it's time to formulate what is the essence of the theory of the English economist. He argued that if there are only two factors for the production of a good, and if the use of one is increased, then this will entail a decrease in the production of the good at the expense of the second factor.

Explanation

At first glance it seems that Rybchinsky's theorem is very confusing. Let's briefly outline the main point. Imagine two companies. One makes computers, which require a lot of capital, and it has money in abundance. Another grows grain, for which it also has enough resources, mainly through labor. The first company exports computers and, due to the high price, increases its capital more and more, demand grows and all forces are mobilized only fortechnology production. At the same time, there is less and less money for grain production, the labor force is moving into a more profitable industry, and the company is degrading.

Plotting a graph

Rybchinsky's theorem states that the ratio of factors in the direction of their decrease or increase will always affect the final result of production, regardless of whether a separate industry or the country's economy as a whole is considered. Consider the graph.

Again, using a specific example, let's figure out how factors of production increase or decrease depending on demand. According to the data, there are two goods X and Y. The first requires capital, the second requires labor. The first OF vector shows what is the optimal ratio of labor and money needed to produce good X with an increase in demand. Similarly for product Y, which represents the vector OE. Point G is shown on the graph. These are the resources of the country. That is, there is a certain stock of capital (GJ) and labor (OJ). To meet the needs of the country, goods X and Y are produced in volumes F and E, respectively.

Rybchinsky's theorem is based on an increase in one of the factors. Let's say it's capital. Now, for the production of a new volume of goods Y (for export), more financial investments are needed, which is exactly G₁. The quantity of goods will move to the point E₁ and increase by the segment EE₁. At the same time, there will not be enough capital for commodity X, which means that production will fall by the interval FF₁. note thatdistance GG₁ is much less than EE1. This means that even a small shift 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 decrease in the economic potential of the whole country. There are enough examples in 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".

The virus got its name from the Netherlands. It was there that the first crisis occurred in the mid-1970s.

About 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 state of affairs, the country's economy should have been growing, but a completely opposite situation was observed. The Dutch currency was rising, and the increase was rapid and very high, while the export of other important goods was decreasing more and more.

Consequences of the "Dutch disease"

The reason for this was the outflow of resources from the manufacturing industries of old goods to gas production. The more demand grew, the more investments were required. The extraction of a valuable resource requiredmoney, labor, technology. They forgot about the export goods of other regions, focusing on one. As a result, the exchange rate rose, which means that the country's competitiveness decreased.

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

Japanese economic miracle

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

All states can be conditionally divided into raw materials and industrial. Some export to the world market mainly products that will become raw materials for goods in another country. Such states have a large labor force, but low incomes. Another type of trade is the exchange of finished products. As a rule, states that trade in manufactured 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.

Japan took advantage of this principle. It is impossible to grow anything on its small territory. Resources are also almost non-existent. All that is - a small hardworking and stubborn people. Thanks todiscoveries in the computer field, oil and gas processing and the chemical industry, Japan was able to establish its economy in such a way that, buying cheap raw materials, they processed it, and released expensive finished products to the world market.

Conclusion

Rybchinsky's theorem is an extended version of Heckscher-Ohlin, according to which a country exports goods that require an excess resource to manufacture, and imports finished goods that it cannot make. Economists are sure that with the expansion of exports of those goods that were already on sale, the imports of those already bought will increase disproportionately. And vice versa. If we focus on importing the missing resources, then in the long run the need for imports will decrease.