Question

Find similarities and comparisons between the comparative advantage and the Heckscher-Ohlin Model (Factor Proportions Theory).

Present and explain at least one aspect to contrast these two theories and one aspect of similarity between these two theories.

Answer 1

Hecksher Ohlin theory is an extension of the comparitive advantage theory and states that the differences in comparitive advantage is due to the differences in factor endowments.While comparing the Ricardian theory of comparitive advantage and Hecksher Ohlin theory,In the comparitive advantage theory it assumes that the labor is the only one factor of production and this theory assumes that it is due to difference in the labor productivity the trade occurs between the countries but in The Hecksher Ohlin model there are two factors of production .Labor and capital are the two factors of production in the Hecksher Ojlin model .According to this theory one country has comparitive advantage over the other country due to difference in the relative amounts of each factors that the country possess.According to these theory the country should export those goods in which it has factor abundance and import those goods in which it is relatively less factor abundant or in another words if a country is rich in labor and scarce in capital then countries should export labor intensive goods and import capital intensive goods.In the comparitive advantage theory the opportunity cost is taken into the consideration.According to these theory it is not the differences in factor endowments as in Hecksher Ohlin theory that determines the comparitive advantage of one country over the other ,it is the opportunity cost.According to comparitive advantage theory the country which is able to produce a good at a lower opportunity cost is said to have comparitive advantage over the other.
The similarity between the two theories is that both the theories assumes that the countries do differ in the productivities and these differences in the productivities is the reason for the trade between the two countries.