Heckscher-Ohlin Theorem Essay ⋆ Political Science Essay Examples ⋆ EssayEmpire

The Heckscher-Ohlin (HO) theorem is the cumulative work of two Swedish economists, Eli F. Heckscher and his student Bertil Ohlin, first published in the early twentieth century. The theorem revolutionized economic explanations of international trade, replacing classical accounts found in the work of Robert Torrens and David Ricardo. The theory purports to explain the conditions under which international trade takes place and what patterns of international trade to expect. Though it has been subject to some degree of criticism, the HO theorem, along with revisions from other economists, represents the foundations of contemporary thinking and policy making concerning foreign trade.

The centerpiece of the theory is relatively straightforward. The theory assumes that production-factor endowments of countries are different and that different industries use different factors with different intensities. The model concludes that countries will export those goods for which they have greater factor intensities. Hence, assuming two factors of production, such as labor and capital, countries with greater labor intensities relative to capital will export labor-intensive goods, while countries that exhibit greater capital intensity will export capital-intensive goods. In effect, the relative intensity of each factor gives each economy a comparative advantage in producing those kinds of goods.

One criticism of the theorem is that it rests upon several oversimplifications, such as identical production functions in different countries, making trade patterns in the real world inexplicable within the theorem’s parameters. Several empirical studies have shown that, in some instances, labor-intensive economies export capital-intensive goods, while some capital-intensive economies import capital-intensive goods. For example, Wassily Leontif (1953) found that in post–World War II America, the United States, a capital-abundant economy, imported capital-intensive commodities. Still others have argued that patterns of trade are best explained by economies of scale and strategic interactions in economic policy.

Defenders of the theorem argue that despite occasional anomalies or paradoxes in the empirical evidence, the HO theorem remains useful for explaining how international trade can occur in the context of the unequal geographic distribution of different resources.

Bibliography:

Heckscher, Eli F., and Bertil Ohlin. Heckscher-Ohlin Trade Theory. Translated, edited and introduced by Harry Flam and M. Jane Flanders. Cambridge, Mass.: MIT Press, 1991.
Horvat, Branko. A Theory of International Trade: An Alternative Approach. New York: MacMillan, 1999.
Krugman, Paul, and Robert Lawrence. “Trade, Jobs, and Wages.” Scientific American, April 1994, 44–49.
Learner, Edward. “The H-O Model in Theory and Practice.” Princeton Studies in Trade, no. 77 (February 1995).
Leontif,Wassily. “Domestic Production in Foreign Trade: The American Capital Position Reconsidered.” Proceedings of the American Philosophical Society, Sept. 1953, 332–349.
Steedman, Ian. “Foreign Trade,” in New Palgrave, vol. 2. London: MacMillan, 1987.

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