Answer to Question #295082 in Macroeconomics for Saba

Question

In what ways does the Heckscher–Ohlin theory

represent an extension of the trade model pre-

sented in the previous chapters? What did classical

economists say on these matters?

Answer 1

Heckscher-Ohlin theory

In economics, a theory of comparative advantage in international trade according to which countries in which capital is relatively plentiful and labour relatively scarce will tend to export capital-intensive products and import labour-intensive products, while countries in which labour is relatively plentiful and capital relatively scarce will tend to export labour-intensive products and import capital-intensive products.

In the Heckscher-Ohlin theory, it is not the absolute amount of capital that is important; rather, it is the amount of capital per worker.

The Heckscher-Ohlin model is an economic theory that proposes that countries export what they can most efficiently and plentifully produce. ... It takes the position that countries should ideally export materials and resources of which they have an excess, while proportionately importing those resources they need.

The Heckscher-Ohlin theorem predicts the pattern of trade: it says that a capital-abundant (labor-abundant) country will export the capital-intensive (labor-intensive) good and import the labor-intensive (capital-intensive) good.