This paper will discuss how the Heckscher-Ohlin theory differs from Ricardian theory in explaining international trade patterns. This paper will also explain how the theory demonstrates how trade affects the distribution of income within trading partners. Then this paper will discuss the Leontief paradox challenge the overall applicability of the factor-endowment model. According to Staffan Linder, there are two explanations of international trade patterns—one for manufacturers and another for primary (agricultural) goods.
The theory developed by Heckscher-Ohlin of comparative advantage was produced as an alternative to the Ricardian model. Heckscher-Ohlin and the Ricardian model both contained the same idea to eliminate the labor theory of value with the incorporation of the price mechanism into international trade theory. Although both Heckscher-Ohlin and the Ricardian model contained the same idea the theories are very much different. The Heckscher-Ohlin theory on international trade focuses on factors that conclude comparative advantage (Appleyard, Field, & Cobb, 2010). With the Heckscher-Ohlin theory countries will specialize in goods that use the most abundant resources available. Heckscher-Ohlin theory considers different factors of production in assessing the effect of international trade on income distribution. Economist say that the Ohlin theory is comparatively modern than the other theory in relation to international trade (Appleyard, Field, & Cobb, 2010). Ricardian theory on international trade focuses on the existence of comparative advancer as an assumption (Siggel, 2003). The Ricardian Theory states if every country produces commodities more than another country then there is a need to specialize in production on a certain product that yields the lowest cost advantage (Siggel, 2003). The country then can exchange the superior product for another that is not so superior for that country to produce. This being said the...
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