THE HECKSCHER-OHLIN MODEL

Consider the Heckscher-Ohlin Model.

There are two countries (Home and Foreign)

There are two production factors (Labour and Capital) and,

Both countries produce only two goods (Cloths and Cars).

Cloths are labour intensive and cars are capital intensive. Home is Labour abundant and Foreign is capital abundant. Then, the Heckscher-Ohlin Theorem states that:

Select one:

i. Home has a comparative advantage in producing cars and Foreign in producing cloths so Home exports cars.

ii. Home has a comparative advantage in producing cars and Foreign in producing cloths so Foreign exports cloths.

iii. Home has a comparative advantage in producing cloths and Foreign in producing cars so Home exports cloths.

iv. Home has a comparative advantage in producing cloths and Foreign in producing cars so Home exports cars.