Heckscher–Ohlin model International trade theory

in 1900s, theory of international trade developed 2 swedish economists, eli heckscher , bertil ohlin. theory has subsequently became known heckscher–ohlin model (h–o model). results of h–o model pattern of international trade determined differences in factor endowments. predicts countries export goods make intensive use of locally abundant factors , import goods make intensive use of factors locally scarce.

the h–o model makes following core assumptions:

labor , capital flow freely between sectors
the amount of labor , capital in 2 countries differ (difference in endowments)
technology same among countries (a long-term assumption)
tastes same

applicability

in 1953, wassily leontief published study in tested validity of heckscher-ohlin theory. study showed united states more abundant in capital compared other countries, therefore united states export capital-intensive goods , import labor-intensive goods. leontief found out united states exports less capital intensive imports. result became known leontief s paradox.

after appearance of leontief s paradox, many researchers tried save heckscher-ohlin theory, either new methods of measurement, or new interpretations.