Factor Proportion Theory
- Theories
- Economic Theory
- International trade
- What is international trade
- Mercantalism
- Classical Trade Theory
- Absolute Advantage Theory
- What is the Comparative Advantage Theory?
- Factor Proportion Theory
- Heckscher-Ohlin theory
- Product Life Cycle Theory
- Theories of Outsourcing
- What is the Theories of Outsourcing?
- What is the Transaction Cost Economics Theory?
- What is the Agency Theory?
- What is the Knowledge based theory?
- What is the Self-regulation Theory?
- What is the Social cognitive theory?
- What is the Leader-Member Exchange Theory?
- Technology adoption Theories
What is the Factor Proportion Theory?
This theory further extends the concept of comparative advantage that exists for certain countries and this is explained in detail by the factor proportions theory. This theory hypothesizes that nations would generate materials that use plenty of production factors which are produced in the same country itself.
In case of materials for which the raw materials are scant in the particular country, they do not make an attempt to produce such materials; instead they are imported (Hecksher & Ohlin 1933)Factor Endowments and the Heckscher-Ohlin theory evaluate the impact of foreign trade on the production of the raw materials for producing a particular good by two competing nations. (Salvatore 1999).
The products that need a great quantity of the cheap raw material will have the cheap cost of production.Therefore they would be exported for a lesser price than the competing nations. This offers a competitive advantage for such nations producing the particular material (Salvatore 1995).