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The Heckscher-Ohlin model of trade proposed by two Swedish economists Hecksher and Ohlin is based on the differences of factor requirements in commodities and difference in relative factor endowments It believes that these factors explain the cause of trade According to the Heckscher-Ohlin theory it predicts that countries will export those goods that make intensive use of factors of production which are locally abundant while importing goods that make intensive use of factors that are locally scarce Salvatore 1995 It extends the trade model to examine the basis for comparative advantage and the effects that international trade have on factor earnings in the nations This essay will focus on how the Heckscher-Ohlin model of trades determines a countrys comparative advantage As an example of this model two countries will be analysed particularly on change patterns of trade in the country Finally this essay will outline briefly the alternative models that can be used under the same condition A few basic assumptions of the Heckscher-Ohlin model or known as 2x2x2 model because of the assumption that there are two countries with different factor endowments with two homogenous factors labour and capital as the only factor production and produces two products differing in their relative factor intensity The other assumptions are that the market is perfectly competitive there are no transportation costs taste and preferences are identical for both countries have the same capability in terms of technology What determines a countrys comparative advantage Comparative advantage is a principle which stated that it will pay the country to produce more of those goods in which it is relatively more efficient and to export them in return for goods in which its relative advantage is least The assumptions that have previously been outlined need to be analysed in order to explain the determinants for a countrys comparative advantage using the Heckscher-Ohlin model When there are two countries with different relative prices in autarky then there
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