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Essay on Microeconomics
Heckscher-Ohlin theory differ from Ricardian theory
The Heckscher-Ohlin theory of comparative advantage was produced as an alternative to the Ricardian model and had an ideological mission: the elimination of the labor theory of value and the incorporation of the neoclassical price mechanism into international trade theory.
Heckscher-Ohlin model illustrates that relative endowments of the factors of production (land, labor, and capital) determine a country's comparative advantage. Countries have comparative advantage in those goods for which the required factors of production are relatively abundant. This is because the prices of goods are ultimately determined by the prices of their inputs. Goods that require inputs that are locally abundant will be cheaper to produce than those goods that require inputs that are locally scarce.
For example, a country where capital and land are abundant but labor is scarce will have comparative advantage in goods that require lots of capital and land, but little labor - grains, for example. Since capital and land are abundant, their prices will be low. Those low prices will ensure that the price of the grain that they are used to produce will also be low - and thus attractive for both local consumption and export. Labour intensive goods on the other hand will be very expensive to produce since labor is scarce and its price is high. Therefore, the country is better off importing those goods whereas on the other hand the Ricardian model of comparative advantage has trade ultimately motivated by differences in labor productivity using different technologies.
Heckscher and Ohlin didn't require production technology to vary between countries, so (in the interests of simplicity) the H-O model has identical production technology everywhere. Ricardo considered a single factor of production (labor) and would not have been able to produce comparative advantage...........
