The relevance of H-O model to international trade

The relevance of H-O model to international trade


Introduction

Early at time of David Richardo, he has justified in terms of a one-factor model in which the product of his single factor, labour, happened to be different between countries. But it is natural to ask why the productivity of labour should vary. Typically, Richardo’s one-factor model, which he attributes such differences to climatic conditions or different levels of technology. H-O model focuses on the differences in factor abundance, and how production of different goods uses factor in different proportion. In Richardo’s model, there is only labour, so on redistribution is possible. In H-O model trade can cause redistribution effects across different factors. There are some differences between two models, however, the determination of the pattern of trade, and determination of relative price are main two similarities.

However, an alternative explanation was suggested in the 1920s by the Swedish economists El...