ASSESSING THE CONCEPT OF HECKSCHER OHLIN MODEL

Abstract

The classical economists have contributed to the knowledge and growth of international trade through their various theories. The theory of Absolute Cost Advantage propounded by Adam Smith, the theory of Comparative Cost Advantage by David Ricardo, the rent surplus theory etc. Classicals always laid emphasis on comparative advantage theory as they explain quite well how two nations can gain based on their comparative costs. The country with the lower comparative (or opportunity) cost has advantage in production of that commodity and hence completely specializes in the production of that commodity and export it to another nation. Similarly, it imports the commodity with the higher comparative cost produced by the other nation cheaply than others. There are, however, obvious limitations of these theories which gave rise to subsequent theories. One of which is Heckscher -Ohlin theory.