Limitations of the Hecksher Ohlin Theory

HECKSCHER-OHLIN THEORY In the early 1900s an international trade guess called doer proportions theory emerged by dickens 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 big and import goods that require resources in short supply. This theory differs from the theories of proportional 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 preliminary theories stated, the goods it produces most efficiently.    The Heckscher-Ohlin theory is preferred to the Ricardo theory by many an(prenominal) economists, because it makes fewer simplifying assumptions. In 1953, Wassily Leontief published a study, where he tried and true the validity of the Heckscher-Ohlin theory. The study showed that the U.S was more abundant in nifty compared to other countries, therefore the U.S would export capital- intensive goods and import labor-intensive goods. Leontief found out that the U.Ss 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 Ohlins theory also assumes no soft differences in factors of production, identical production function, constant return to scale… All these assumptions make the theory unrealistic one - Restrictive: Ohlins theory is not free from constraints. His theory includes only two commodities, two countries and two factors. Thus it is a restrictive one - sloping theory: According to Ohlins theory, supply plays a pregnant role than demand in... If you want to get a proficient essay, order it on our website: Orderessay

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