Answer to Question #292812 in Economics for Hafsa

Question

In what ways does the Heckscher–Ohlin theory represent an extension of the trade model presented 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.

The classical theory of trade is based on the labour cost theory of value. This theory states that goods are exchanged against one another according to the relative amounts of labour embodied in them. Goods which have equal prices embody equal amounts of labour.