The Heckscher-Ohlin Model

Abstract

In Chapter 2 we discussed the theory of comparative advantage in terms of a one-factor model, where the only factor was labour, and comparative advantage was determined by technological differences, and a three-factor model where labour was the only mobile factor and comparative advantage was determined by differences in the endowment of one of the factors. We saw that in both cases the move to free trade leads to a transfer of the mobile factor from the import-competing sector to the export sector.