Heckscher-Ohlin Theorem: Export Conditions
The Heckscher-Ohlin theorem explains international trade patterns based on differences in countries' factor endowments (resources like labor and capital).
Factor Abundance and Cost
- A nation tends to have a relative abundance of certain factors of production compared to others.
- Factors that are relatively abundant in a country are generally relatively cheaper there.
Identifying Export Commodities
- The theorem predicts that a country will specialize in and export goods that require the intensive use of its relatively abundant factors.
- These same goods will also be intensive in the use of the country's relatively cheap factors.
- For example, a country abundant in labor (making labor cheap) will export labor-intensive goods.
- Therefore, according to the Heckscher-Ohlin theorem, a nation will export a commodity which is intensive in its relatively abundant factor AND intensive in its relatively cheap factor. Both conditions are necessary and linked.
Important Questions from Theories of international trade
The following statements relate to transnationality. Choose the correct code for the statements being correct or incorrect.
Statement I: The UNCTAD developed an index to compare the transnationality of countries in which TNCs operate.
Statement II: The UNCTAD followed parameters like FDI flow as a percentage of gross fixed capital formation, FDI inward stock, value added by foreign affiliates and jobs created by them.
Heckscher-Ohlin Theory of factor endowment suggests which of the following types of relationships?
(A) Production — Marketing relationship
(B) Land — Labour relationship
(C) Marketing — Capital relationships
(D) Labour — Capital relationships
(E) Technological complexities
Choose the correct answer from the options given below:
According to the Heckscher-Ohlin theory, which one of the following statements is correct?
Given below are two statements:
Statement I: Translation exposure refers to the exchange gain or loss occurring from the difference in the exchange rate at the beginning and the end of the accounting period.
Statement II: Transaction exposure refers to the change in the value of the firm caused by the unexpected changes in the exchange rate.
In the light of the above statements, choose the most appropriate answer from the options given below:
Match List I with List II
LIST I (Theory) LIST II (What Nation's do) A. Mercantilism I. The range of products made or grown for export would depend upon the relative availability of different factors in each country. B. Theory of Absolute Advantage II. Gold and silver are the mainstay of national wealth C. Theory of Comparative Advantage III. Countries should specialize in the production of goods for which they have absolute advantage D. Factor Endowment IV. Nations should produce those goods for which they have the greatest relative advantage Choose the correct answer from the options given below:
