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

The Heckscher - Ohlin Theorem is an economic theory that suggest the countries exports as they can most efficiently and plentifully produce . Also referred to as the H-O model or 2x2x2 model, it's used to evaluate trade and, more specifically, the equilibrium of trade between two countries that have varying specialties and natural resources.

The Heckscher- Ohlin Model makes it possible to find the trade balance between two countries. Each country has its own natural resources and specialties in the area of production. Think of the basic production materials, as we know them in nature, labor and capital; natural resources and auxiliary resources, labor forces and money to invest in industry, for instance. According to the model, countries should export production factors of which they possess an excess and import production factors of which they have a shortage. When this happens proportionally, it is where the foundation for international trade is found.

As in the Heckscher - Ohlin model assumes only the fixed quantities as of all the factors of production that is land, labor , capital and entrepreneur , 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.

Even today, the Heckscher Ohlin Model still applies and it emphasizes the advantage of international trade as well as world-wide advantages. The Heckscher Ohlin Model is not limited to tradable goods, but also focuses on abstract production factors like labor. When a country has an excess of natural gas, it can decide, aside from building a supply for local use, to export this to other countries. labor costs can differ from one country to the next, for which reason a country may decide to buy cheaper migrant workers for production and cleaning activities.

Considering the two countries 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 lagged with respect to the exports.

Yes, the HO Theorems 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 .