The Heckscher–Ohlin theorem
is one of the four critical theorems of the Heckscher–Ohlin model
. It states that a country will export goods that use its abundant factors intensively, and import goods that use its scarce factors intensively. In the two-factor case, it states: "A capital-abundant country will export the capital-intensive good, while the labor-abundant country will export the labor-intensive good."
The critical assumption of the Heckscher–Ohlin model is that the two countries are identical, except for the difference in resource endowments. This also implies that the aggregate preferences are the same. The relative abundance in capital
will cause the capital-abundant country to produce
the capital-intensive good cheaper than the labor
-abundant country and vice versa.
Initially, when the countries are not trading:
- the price of capital-intensive good in capital-abundant country will be bid down relative to the price of the good in the other country,
- the price of labor-intensive good in labor-abundant country will be bid down relative to the price of the good in the other country.
Once trade is allowed, profit
-seeking firms will move their products to the markets that have (temporary) higher price. As a result:
- the capital-abundant country will export the capital-intensive good,
- the labor-abundant country will export the labor-intensive good.
The Leontief paradox
, presented by Wassily Leontief
in 1951, found that the U.S. (the most... Read More