The following theorems form the basis of the Heckscher-Ohlin model of international trade:
The Heckscher-Ohlin theorem states that a labor-abundant country will specialize in and export labor-intensive commodity, whereas a capital-abundant country will specialize in and export capital-intensive commodity.
According to the Stolper-Samuelson theorem, under the assumptions of constant returns to scale and perfect competition, an increase in relative price of a good will result in an increase in return to that factor of production, which is being used intensively in the production of that good and a decrease in return to the other factor of production that is being used less intensively.
As per the Factor Price Equalization theorem if free trade leads to equalization of the prices of goods between countries, then it will lead to equalization of prices of the factors of production (labor and capital) as well.
Rybczynski theorem depicts the relationship between changes in endowments with the output of goods, given full employment. According to this theorem, a rise in endowment of a factor of production in a country will lead to a rise in production of the good, which utilizes that factor more intensively, and a fall in the output level of the other good, which uses that factor less intensively.
The Heckscher-Ohlin model is based on the following assumptions:
The capital-abundant country will export capital-intensive commodity and import labor-intensive commodity and the labor-abundant country will export labor-intensive commodity and import capital-intensive commodity.
Heckscher-Ohlin model assumes huge importance in the field of international trade. However, there are contradictions of this model as well. Wassily Leontief has come up with a contradiction of Heckscher-Ohlin model. He has shown that in spite of being capital abundant, USA mostly exports labor-intensive goods and imports capital-intensive goods.
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