Which countries would benefit most from Heckscher-Ohlin's theory? & Why is Heckscher-Ohlin theory still effective?

Expert Solution

Hecksher - Ohlin Theory developed Factor Endowment Theory

Assumptions

two country ,two commodity ,two factors of production

2*2*2 model

for example two countries A and B Two commodities X and Y two factors labour and capital

Commodity	Capital	Labour	Countries
X	2	2	A
Y	1	4	B

In the above table there are two countries producing two different commodities Xand Y with two factors of production Labour and Country

So the country A got 2 unit of both labour and capital producing Xcommodity while on the other Hand Country B produces Y commodity with 1 unit of capital and 4 unit of labour so itwillbe beneficial for country B to produce more of labour intensive goods rather than capital intensive goods.While in case of country A should produce more of capital intensive goods because they can export those goods to countryB which is more of labour intensive rather than capital intensive goods.

basically the if the country will produce that commodity that require large prportion of factor which is relatively abundant.Conversely each nation is least suitable to produce the commodity which requires greater proportion of factor which is sacrce or available in small quantity.

Rahul Sunny answered 2 years ago

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