How does the Heckscher-Ohlin theory explain international trade?
What will be an ideal response?
Ans: According to the Heckscher-Ohlin theory, factor endowments determine patterns in international trade. Factor endowments refer to how many resources a country is given, such as capital, land, and labor. If a country has a good in abundance, it will be cheaper; therefore, they will export that good. Scarce goods are more expensive; therefore, they will import that good. Essentially, each country is benefiting each other by sharing what they have in abundance in exchange for something they lack that another country has an abundance of.
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