What Is the Heckscher-Ohlin Model?

The Heckscher-Ohlin model is an economic theory that argues countries export what they can most efficiently produc𒈔e. It's also referred to as the H-O model or 2x2x2 model. It evaluates trade equilibrium between two countries with varying specialties and natural resourc🉐es.

The model compares a country's export of goods and 澳洲幸运5官方开奖结果体彩网:factors of production with its import of goods it can🐽🐟't produce as efficiently.

What the H-O Model Explains

The Heckscher-Ohlin model was formed from a 1919 Swedish paper by Eli Heckscher at the Stockholm School of Economics. His student, Bertil Ohlin, added to it in 1933. Economist 澳洲幸运5官方开奖结果体彩网:Paul Samuelson expanded the original model through articles written in 1948, 1949, and 1953. Some refer to it as the Heckscher-Ohlin-Samuelson model for this reason.

The Heckscher-Ohlin model explains mathematically how a country should operate and trade 🍎when resources are imbalanced. It defines the preferred balance between two countries, each with its resources. It takes the position that countries should ideally export materials and resources that they have an excess of while proportionately importing those resources they need.

The model isn't limited to tradable 澳洲幸运5官方开奖结果体彩网:commodities. It incorporates other production factors such as labor. According to the model, labor costs vary so countries with cheap labor forces should focus primarily on producing labor-intensive goods.

Example

Certain countries have extensive oil reserves but they have very little iron ore. Other countries can easily access and store 澳洲幸运5官方开奖结果体彩网:precious metals but they have little in the way of agriculture.

The Netherlands exported almost $696 million in U.S. dollars in 2021 compared to imports of approximately $623 million. Its top import-export partner was Germany.♊ Importing on a close to equal basis allowed it to efficiently and economically manufacture and provide exports.

The Bottom Line

The Heckscher-Ohlin model emphasizes the benefits of international trade and the global benefits when each country exports domestically abundant resources. It argues that all countries benefit when they import the resources they lack. Trading internationally allows countries to adjust to capital-intensive goods production that wouldn't be possible if each country only sold goods internally.