Heckscher-Ohlin Model - Explained
What is the Heckscher-Ohlin Model?
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What is the Heckscher-Ohlin Model?
The Heckscher-Ohlin model, otherwise known as the H-O model or 2x2x2 model, is a mathematical theory used in international trade to evaluate the export pattern of a country relative to the natural resources at their disposal.
The model explains how resources are imbalanced throughout the world. It assumes that it is best for countries to export materials they can produce efficiently and in surplus.
What Does the Heckscher-Ohlin Model Explain?
According to this model, countries generally export items that they produce in abundance given their natural, land, labor and capital endowments.
Thus, countries that have certain resources in abundance tend to have a comparative advantage over countries that do not have these resources.
What Developed the Heckscher-Ohlin Theory?
The Heckscher-Ohlin model was developed in the 1930as by two Swedish economists, Eli Heckscher and Bertil Ohlin.
The original work that led to the development of the Heckscher-Ohlin model was a paper written in 1919 by Swedish economists, Eli Heckscher at the Stockholm. The model was subsequently expanded in the 1930s.
How is the Heckscher-Ohlin Model Used?
In international trade, the model is also used to evaluate the equilibrium of trade between two countries given their different production capabilities and natural resources.
The Heckscher-Ohlin model maintains that the specific natural resources that a country has would give it an advantage in producing related goods.
The Heckscher-Ohlin model is not limited to natural resources or commodities, it also accounts for factors of production such as labor, land and capital and how they affect exportation.
The Heckscher-Ohlin model helps to find a trade balance between the two countries involved in international trade.
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