CA Foundation · Business Economics · International Trade
The Heckscher-Ohlin theory explains the pattern of international trade mainly on the basis of differences in:
The Heckscher-Ohlin theory explains trade through differences in factor endowments. A country exports goods that make intensive use of the factor it has in abundance, such as labour or capital, and imports goods that need its scarce factor. Labour productivity differences belong to the Ricardian model instead.
- AFactor endowments between countriesCorrect
- BLabour productivity between countries
- CConsumer tastes between countries
- DExchange rate policies between countries
Explanation
The Heckscher-Ohlin theory says a country exports goods that use intensively its abundant factor and imports goods that use intensively its scarce factor. Differences in labour productivity underlie the Ricardian theory, so option 2 is wrong.
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