Given below are two statements one is labelled as Assertion (A) and the other is labelled as Reason (R). Assertion (A): Heckscher and Ohlin developed a theory to explain the reasons for differences in relative commodity prices and competitive advantages between two nations. According to this theory, a nation will export the commodity whose production requires intensive use of nation's relatively abundant and cheap factors and import the commodity whose production requires intensive use of the nation's scarce and expensive factors. Reason (R): Thus, a country with an abundance of cheap labour would import labour intensive products and export capital intensive goods and vice-versa. In the light of the above statements, choose the most appropriate answer from the options given below:
Assertion (A) Analysis: Heckscher-Ohlin Theory
The Assertion (A) correctly describes the core principle of the Heckscher-Ohlin (H-O) theory. This theory explains international trade patterns based on differences in factor endowments (like labor and capital) between countries. It posits that a country tends to export goods that make intensive use of its relatively abundant and inexpensive factors of production. Conversely, it imports goods that require intensive use of its relatively scarce and expensive factors.
Reason (R) Analysis: Incorrect Application
Reason (R) attempts to apply the H-O theory but makes a mistake. It states that a country abundant in cheap labor would import labor-intensive products and export capital-intensive goods. This contradicts the H-O theory.
- According to the H-O theory stated in (A), a country abundant in cheap labor should export labor-intensive goods, not import them.
- Similarly, it should import capital-intensive goods, not export them (assuming capital is relatively scarce and expensive).
Therefore, Reason (R) presents an incorrect application or conclusion drawn from the H-O theory.
Conclusion
Based on the analysis, Assertion (A) accurately represents the Heckscher-Ohlin theory, while Reason (R) incorrectly applies it. Thus, Assertion (A) is correct, and Reason (R) is incorrect.
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:
