The Heckscher—Ohlin Theory

The central question of foreign trade theory is how to determine the pattern of foreign trade: which commodities will be exported and imported and where. The answer provided is based on the work of two Swedish economists, Eli Filip Heckscher (1919) and Bertil Ohlin (1933). Their propositions were later formulated as the Heckscher—Ohlin Theorem (HO). Subsequently three additional theorems have been posited. These four propositions represent the core of the mainstream theory of foreign trade. Of these, two refer to comparisons between two countries (the HO theorem proper and the factor price equalization theorem). The other two deal with relationships within a single country (the Stolper—Samuelson and Rybczynski theorems). The latter two can dispense with the assumption of identical technology.