Question

the h-o theorem is not valid under the physical criteria pf factor abundance if​

Answer 1

Answer:

In this article we will discuss about:- 1. Heckscher-Ohlin Theory of International Trade 2. Superiority of Heckscher-Ohlin Theory over the Classical Theory 3. Criticisms.

The classical comparative costs theory developed by Adam Smith, Ricardo and Mill maintained that comparative cost advantage of the trading countries was based on the differences in the productivity of labour (single factor) but they failed to provide a satisfactory explanation for such differences. It is of course true that the relative cost differences or relative differences in commodity prices between two countries are an evidence of their comparative advantage. But what is the fundamental cause of the commodity price differences remained unanswered in the classical theory.

The theory for analysing the pattern of international trade, developed by Swedish economists Eli Heckscher (1919) and Bertil Ohlin (1933) attempted to deal with this vital question. This theory did not supplant the traditional comparative costs theory but supported it by providing explanation for the relative commodity price differences between the countries and their respective comparative advantages. According to them, the differences in commodity prices arise because of the differences in factor endowments (factor supplies) in these countries.