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Heckscher-Ohlin Theorem

Definition

The Heckscher–Ohlin theorem is one of the four critical theorems of the Heckscher–Ohlin model, developed by Swedish economist Eli Heckscher and Bertil Ohlin. It states that a country will export goods that use its abundant factors intensively, and import goods that use its scarce factors intensively. In the two-factor case, it states: "A capital-abundant country will export the capital-intensive good, while the labor-abundant country will export the labor-intensive good."

Heckscher-Ohlin Theorem

What is the 'Heckscher-Ohlin Model'

The Heckscher-Ohlin model is a theory in economics explaining that countries export what can be most efficiently and plentifully produced. This model is used to evaluate trade and, more specifically, the equilibrium of trade between two countries that have varying specialties. Emphasis is placed on the exportation of goods requiring factors of production that a country has in abundance and the importation of goods that the country cannot produce as effectively.

Explaining 'Heckscher-Ohlin Model'

At its center, the Heckscher-Ohlin model’s goal is to mathematically explain the means by which a country should operate when resources are imbalanced throughout the world, meaning resources a country lacks are abundant elsewhere, with different countries having different resources in abundance to feed into the global market.

Example

For example, certain countries have extensive oil reserves but have very little iron ore. Meanwhile, other countries can easily access and store precious metals but have little in the way of agriculture. The Heckscher-Ohlin model is not limited to commodities that can be traded but incorporates other production factors, including labor. The costs of labor vary from one country to another, so countries that have cheap labor forces, according to the model, should focus primarily on producing goods that are too labor-intensive for other countries to focus on.

Evidence

While the Heckscher-Ohlin model rings logical, and fairly reasonable, most economists have difficulty tracking evidence that actually supports the model. The truth is that a variety of other models have been used in an attempt to explain why industrialized and developed countries traditionally lean toward trading with one another and rely less heavily on trade with developing markets. This theory is outlined and explained by the Linder hypothesis.

History

The primary work behind the theory was presented in a 1919 Swedish paper written by Eli Heckscher and was later bolstered by his student, Bertil Ohlin, in his 1933 book. A number of years later, economist Paul Samuelson expanded the original model — largely through articles written in 1949 and 1953. This is why the model is often referred to as the Heckscher-Ohlin-Samuelson model.


Further Reading

Rational underdevelopment: regional economic disparities under the Heckscher-Ohlin TheoremRational underdevelopment: regional economic disparities under the Heckscher-Ohlin Theorem
www.tandfonline.com [PDF]
… International Review of Applied Economics … Previous Ricardian-model-based considerations of this phenomenon, known as rational underdevelopment, have ignored … study thus re-examines rational underdevelopment in light of the Heckscher-Ohlin Theorem, considering two …

One size fits all? Heckscher-Ohlin specialization in global productionOne size fits all? Heckscher-Ohlin specialization in global production
www.aeaweb.org [PDF]
… International Review of Applied Economics … Previous Ricardian-model-based considerations of this phenomenon, known as rational underdevelopment, have ignored … study thus re-examines rational underdevelopment in light of the Heckscher-Ohlin Theorem, considering two …

Some of the theorems of international trade with many goods and factorsSome of the theorems of international trade with many goods and factors
www.worldscientific.com [PDF]
… International Review of Applied Economics … Previous Ricardian-model-based considerations of this phenomenon, known as rational underdevelopment, have ignored … study thus re-examines rational underdevelopment in light of the Heckscher-Ohlin Theorem, considering two …

The performance of the Heckscher-Ohlin-Vanek model in predicting endogenous policy forces at the individual levelThe performance of the Heckscher-Ohlin-Vanek model in predicting endogenous policy forces at the individual level
www.jstor.org [PDF]
… International Review of Applied Economics … Previous Ricardian-model-based considerations of this phenomenon, known as rational underdevelopment, have ignored … study thus re-examines rational underdevelopment in light of the Heckscher-Ohlin Theorem, considering two …

Energy, the Heckscher-Ohlin theorem, and US international tradeEnergy, the Heckscher-Ohlin theorem, and US international trade
www.jstor.org [PDF]
… International Review of Applied Economics … Previous Ricardian-model-based considerations of this phenomenon, known as rational underdevelopment, have ignored … study thus re-examines rational underdevelopment in light of the Heckscher-Ohlin Theorem, considering two …

The economics of the" guest worker" problem: A neo Heckscher-Ohlin approachThe economics of the" guest worker" problem: A neo Heckscher-Ohlin approach
www.jstor.org [PDF]
… International Review of Applied Economics … Previous Ricardian-model-based considerations of this phenomenon, known as rational underdevelopment, have ignored … study thus re-examines rational underdevelopment in light of the Heckscher-Ohlin Theorem, considering two …

Heckscher–Ohlin theory when countries have different technologiesHeckscher–Ohlin theory when countries have different technologies
www.sciencedirect.com [PDF]
… International Review of Applied Economics … Previous Ricardian-model-based considerations of this phenomenon, known as rational underdevelopment, have ignored … study thus re-examines rational underdevelopment in light of the Heckscher-Ohlin Theorem, considering two …


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