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Factor-Endowment Trade theory

The factor-endowment theory suggests you should trade in the products that you can make from the production factors and resources you naturally possess. Depending on the country in which you live, identify in what your country should trade and what your country should import. Explain your answer in as much detail as possible.

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The factor-endowment theory is also called the Heckscher-Ohlin (HO) theory as a credit to Heckscher and Ohlin who introduced this theory closed to a century ago. This theory complemented the Ricardo's comparative advantage theory. Comparative advantage theory doesn't explain the basis for comparative advantage for the selected goods. Why one good is having comparative advantage as compared to others. The HO theory explains the reason for ...

Solution Summary

Heckscher-Ohlin theory or factor-endowment theory is a trade theory which stated that factor abundant is the basis for comparative advantage of goods as compared to other goods. The theory stated that a country should specialized producing goods that it has abundant factors and import goods that it has relatively less abundant factor. For example, a country with abundant labor should produce and export labor-intensive goods and import capita- intensive goods, for example. As a result, a country will maximize the benefits from specialization and trade between countries.

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