Heckscher-Ohlin Theory

This section describes the Heckscher-Ohlin theory, which explains the importance of a country’s resource endowment and quantity for international trade. The theory is more hypothetical, as it has many limitations in its practical application, but it explains general principles on the importance of different resource intensities in different industries.

Ex. 1‑18 Heckscher–Ohlin theorem in the context of other historical events

Keywords: I world war, II world war, Heckscher-Ohlin

Ex. 1‑19 The mathematical expression of the Heckscher-Ohlin theorem

Keywords: capital, labour

Following theory, producers will exchange labour for capital if capital prices fall because of their abundance. In this case, we take the example of snacks. Suppose capital is expensive and scarce, and labour is abundant and cheap relative to capital. In that case, it is likely that in many cases, we will find many catering establishments, buffets, or kiosks where a worker will sell snacks – for example, chocolates. On the other hand, in a country where labour is scarce and expensive in terms of capital, we will find more automated food vending machines replacing workers. In other words, in the first case, it will pay better for the entrepreneur to hire a worker to sell the snacks, and in the second case, it will pay better to invest in an automated food vending machine because it is cheaper than paying a monthly salary to a salesperson.

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