Heckscher-Ohlin 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
Heckscher-Ohlin theory
Proposal of Heckscher-Ohlin theory
The Heckscher-Ohlin theory focuses on the issue that worldwide and regional variations in costs of production may occur due to the dissimilarities in the contribution of production factors (Mcculloch 1999). This theory comprises of the following core proposals
- Trade patterns and endowments of factor
- Equalization of price of factor
- Growth of factor and patterns of output
- Distribution of income
Presumptions of Heckscher-Ohlin theory
The theory has many presumptions.
(i) Cost taking customers lessen the expense required to realize any level of
utility (real income), and this assumption implicates “downward sloping demand
curves” in the general form.
(ii) Manufacturers perform so as to optimize the country’s product given the
resource donation. This presumption leads to “upward sloping supply curves” in the
generalized format.
Illustration of Heckscher-Ohlin theory
A best example for this theory is the U.S. In some cases like sophisticated technologies, America possesses a relative advantage and competitive edge over the other nations of the world. Japan is another example that has emerged as a leading player after the Second World War and is now the most efficient technology manufacturer which was originally a textile producer.
Eli Heckscher and Bertil Ohlin’s “H-O theory” is a best attempt to answer this question.The question of how the differences in salary to the labourers in India and America are affected by trade is answered by The “Factor-Price Equalization Theorem”.
“The Stolper-Samuelson Theorem” attempts to come up with solutions to the question, “How does trade affect the distribution of income among factors of production within nations?”