Limitations of the Hecksher Ohlin Theory
HECKSCHER-OHLIN THEORY
In the early 1900s an international trade theory called factor proportions theory emerged by two Swedish economists, Eli Heckscher and Bertil Ohlin. This theory is also called the Heckscher-Ohlin theory. The Heckscher-Ohlin theory stresses that countries should produce and export goods that require resources (factors) that are abundant and import goods that require resources in short supply. This theory differs from the theories of comparative advantage and absolute advantage since these theory focuses on the productivity of the production process for a particular good. On the contrary, the Heckscher-Ohlin theory states that a country should specialise production and export using the factors that are most abundant, and thus the cheapest. Not produce, as earlier theories stated, the goods it produces most efficiently.
The Heckscher-Ohlin theory is preferred to the Ricardo theory by many economists, because it makes fewer simplifying assumptions. In 1953, Wassily Leontief published a study, where he tested the validity of the Heckscher-Ohlin theory. The study showed that the U.S was more abundant in capital compared to other countries, therefore the U.S would export capital- intensive goods and import labour-intensive goods. Leontief found out that the U.S's export was less capital intensive than import.
Limitations of Heckscher Ohlin Theory
Criticised: - Unrealistic Assumptions: Besides the usual assumptions of two countries, two commodities, no transport cost, etc Ohlin’s theory also assumes no qualitative differences in factors of production, identical production function, constant return to scale… All these assumptions make the theory unrealistic one
- Restrictive: Ohlin’s theory is not free from constraints. His theory includes only two commodities, two countries and two factors. Thus it is a restrictive one
- One-sided theory: According to Ohlin’s theory, supply plays a significant role than demand in determining
In the early 1900s an international trade theory called factor proportions theory emerged by two Swedish economists, Eli Heckscher and Bertil Ohlin. This theory is also called the Heckscher-Ohlin theory. The Heckscher-Ohlin theory stresses that countries should produce and export goods that require resources (factors) that are abundant and import goods that require resources in short supply. This theory differs from the theories of comparative advantage and absolute advantage since these theory focuses on the productivity of the production process for a particular good. On the contrary, the Heckscher-Ohlin theory states that a country should specialise production and export using the factors that are most abundant, and thus the cheapest. Not produce, as earlier theories stated, the goods it produces most efficiently.
The Heckscher-Ohlin theory is preferred to the Ricardo theory by many economists, because it makes fewer simplifying assumptions. In 1953, Wassily Leontief published a study, where he tested the validity of the Heckscher-Ohlin theory. The study showed that the U.S was more abundant in capital compared to other countries, therefore the U.S would export capital- intensive goods and import labour-intensive goods. Leontief found out that the U.S's export was less capital intensive than import.
Limitations of Heckscher Ohlin Theory
Criticised: - Unrealistic Assumptions: Besides the usual assumptions of two countries, two commodities, no transport cost, etc Ohlin’s theory also assumes no qualitative differences in factors of production, identical production function, constant return to scale… All these assumptions make the theory unrealistic one
- Restrictive: Ohlin’s theory is not free from constraints. His theory includes only two commodities, two countries and two factors. Thus it is a restrictive one
- One-sided theory: According to Ohlin’s theory, supply plays a significant role than demand in determining