How does the Heckscher-Ohlin theory differ from the comparative advantage theory?
Heckscher-Ohlin asserts that differences in comparative advantage come from differences in factor abundance and in the factor intensity of goods. Specifically, Heckscher-Ohlin predicts that coun- tries will produce relatively more of the goods that use their relatively abundant factors relatively intensively.
What is the theory of comparative advantage?
comparative advantage, economic theory, first developed by 19th-century British economist David Ricardo, that attributed the cause and benefits of international trade to the differences in the relative opportunity costs (costs in terms of other goods given up) of producing the same commodities among countries.
What does the Heckscher-Ohlin theorem state?
The Heckscher-Ohlin (H-O) theorem. It states that the capital-abundant country will export the capital-intensive good and the labor-abundant country will export the labor-intensive good.
What does the Heckscher-Ohlin theory postulate which force do Heckscher and Ohlin identify as the basic determinant of comparative advantage and trade?
Heckscher-Ohlin theory, in economics, a theory of comparative advantage in international trade according to which countries in which capital is relatively plentiful and labour relatively scarce will tend to export capital-intensive products and import labour-intensive products, while countries in which labour is …
Which force do Heckscher and Ohlin identify as the basic determinant of comparative advantage?
The Heckscher-Ohlin theory (H-O model) of trade suggests that the differences in countries’ resources are the driving force of international trade. The theory states that the comparative advantage comes from the difference in the abundance of factor production and the factor intensity of the products (Morrow, 2010) .
How do you identify comparative advantage?
To calculate comparative advantage, find the opportunity cost of producing one barrel of oil in both countries. The country with the lowest opportunity cost has the comparative advantage.
What are the differences between comparative advantage vs competitive advantage?
The key distinction is that while comparative advantage seeks to explain patterns and gains from trade, the competitive advantage explains which firms, industries or nations will be winners in a global competition and how they can position for it.
What does the Heckscher Ohlin theory postulate which force do Heckscher and Ohlin identify as the basic determinant of comparative advantage and trade?
What is the source of comparative advantage in the Heckscher Ohlin model?
Factor endowments: the Heckscher-Ohlin theory Simply put, countries with plentiful natural resources will generally have a comparative advantage in products using those resources.