Almost after a century and a quarter of the classical version of the theory of international trade, two Swedish economists, Eli Heckscher and Bertil Ohlin, propounded a theory that is known as the factor endowment theory or the factor proportions theory. In fact, it was Eli Heckscher (1919) who mooted the notion of a country’s comparative advantage (disadvantage) based on relative abundance (scarcity) of factors of production. Later on, his student, Bertil Ohlin (1933) developed this notion of relative factor abundance into a theory of the pattern of international trade.
Factor Proportions theory of international trade explains that in a two-country, two-factor, and two-commodity framework different countries are endowed with varying proportions of different factors of production.… Read the rest