Heckscher –Ohlin’s Factor Endowment Theory (H-O Theory)

 the theory was introduced by two Sweden economists namely Eil Filip Heckscher and Bertil Gotthard Ohlin in 1933. According to the theory, a country will have comparative advantage in, and therefore will export; that good whose production is relatively intensive in the factor with which that country is relatively well endowed. Thus, the country which is relatively capital abundant compared wish the other country will have a comparative advantage in producing capital intensive goods and a country which has abundant labor; it will have a comparative advantage in producing labor intensive products. Compared to absolute and comparative advantage models, HO model is a complete model of the workings of an economy as it engages in international trade . The theory can summarize as follows;