The Heckscher—Ohlin Theorem and the Theorem of Factor Price Equalisation

The Ricardian theory of comparative costs and the introduction of the terms of trade explains to a certain degree why trade occurs, in what commodities, and its volume. But it does not give any account as to why comparative cost ratios differ between countries. One answer to this question was supplied by Heckscher in 1919 [12] and elaborated by his pupil Ohlin [34]. Their approach has been formally worked out by later economists, e.g. Johnson [16], Jones [20], Lancaster [23] and Stolper and Samuelson [44], and the Heckscher-Ohlin model, as it has become known, is the foundation of most pure trade theory.