AP MacroeconomicsInternational & Development Economics
Heckscher-Ohlin Model
The Heckscher-Ohlin model predicts that countries export goods that intensively use their relatively abundant factor of production and import goods using their scarce factor.
Where Ricardo's comparative advantage rests on labor-productivity differences, Heckscher-Ohlin explains trade by differences in factor endowments (capital vs. labor vs. land). A capital-abundant country has comparatively cheap capital, so it specializes in and exports capital-intensive goods, while a labor-abundant country exports labor-intensive goods. The model assumes two countries, two goods, and two factors that are mobile within but not between countries.