The Heckscher-Ohlin Trade Test

Saturday, March 15, 2008 3:14

As an undergrad at Missouri, I was introduced to one of the tenants of international trade economic theory, the Heckscher-Ohlin Theory.

Its premise is simple:

By specializing in production, and by trading with other countries, it is possible for countries to increase their incomes. Even though countries as a whole benefit from specialization and international trade, all groups in society, workers and capitalists, do not gain according to the Heckscher-Ohlin theory.

to be honest, the more I time I spend in the real world, I am not sure how closely the tenants hold as there are a number of factors that go simply beyond the constraints that they were working with in the 1940’s.

However, if you look at the recent conversations on China & Vietnam we have been having, two of the major factors are labor (China) & capital investment (Vietnam)…but there are so many others.

anyway, take 15 minutes and run through the game. I seemed to have more fun putting my avitor together, but it is well done and makes you think some of the basics

After you have finished playing, postyour comments on how this theory, or others, need to be updated. While a their core they are often guides to strong economic theory, I am of the opinion that the globalization that has occurred since requires these theories to be updated.

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One Response to “The Heckscher-Ohlin Trade Test”

  1. Omegaman says:

    April 25th, 2008 at 1:04 am

    By specializing in particular industries, a country can/will limit its growth.

    H-O really places emphasis on production inputs beyond labor. As we can see in many countries, land and capital are not utilized for full effect.

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