Heckscher-Ohlin Trade Theory

Discipline: Economics

First developed by Eli Heckscher (1879-1952) and later developed by fellow Swedish economist Bertil Ohlin (1899-1979) in 1933, Heckscher-Ohlin trade theory is a theory to explain the existence and pattern of international trade based on a comparative cost advantage between countries producing different goods.

Heckscher and Ohlin state that this advantage exists because of the relative resource endowments of the countries trading.

However, the Russian-born American economist Wassily Leontief (1906-1999) in 1954 examined US foreign trade and found that US exports were more labor intensive and imports were more capital intensive (the Leontief paradox).

Source:
E Heckscher, 'The Effect of Foreign Trade on Distribution of Income', Readings in the Theory of International Trade (1949);
Bertil Ohlin, Interregional and International Trade (1933)

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