Question

Briefly explain what the Heckscher-Ohlin Theorem is about, what the limitations are, and why economists use this model to analyze trade pattern between two countries. Additionally, research two countries and describe the trade pattern between the two countries chosen. Can you apply the HO Theorem to the trade patterns? Why or why not? Minumum word count : 650 words

Answer 1

ANS:

• The Heckscher- Ohlin Therorism is an economic theory that proposes the countries exports as they can most efficiently and plentifully produce . Also being used to evaluate the trade and more specifically the equilibrium of the trade between the two countries that have varying specialities and natural resources.HO Model = 2*2*2 ( 2 countries , 2 commodities , 2 factors)

As in the Hechscher - Ohlin model that assumes only the fixed quantities as of all the factors of production that is land, labour , capital and enterpreneur , as given production functions , incomes and the costs. That means that this theory only investigates the pattern of international trade in constant setting. As all the conclusions drawn from such an analysis are simply not be relevant to a dynamic system.

• Considering the two contries as India and China , as China total share in India total share stood at 11% in 2016. Further the share of India in exports at 3.7% . Whereas the share in India's overall imports are at 16% from China. As the growth of India's imports from China is laggerd with respect to the exports.

Yes, the HO Therorism can be used in the trade pattern as this model is considered to be better description of the world as this theory is frequently at variance as with the actual patterns of international trade .As this pattern predict the pattern of trade between the countries characteristics of the countries.as this gives a country the prosperity for producing the good that uses relatively more capital in the production process , so that's the good capital intensive.