Which one of the following assumptions is the most important assumption in the Heckscher - ohlin…
The Heckscher–Ohlin (H–O) theorem explains international trade through differences in countries' relative factor endowments and commodities' relative factor intensities (the…
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Which one of the following assumptions is the most important assumption in the Heckscher - ohlin theorem of international trade ?
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Correct answer A
The Heckscher–Ohlin (H–O) theorem explains international trade through differences in countries' relative factor endowments and commodities' relative factor intensities (the factor-proportions theory). While the classical Ricardian model already assumes two countries, two commodities , and free trade / no tariff with only a single factor of production (labour), the defining and most essential structural assumption that distinguishes the Heckscher–Ohlin model is the Two-factor model (typically labour and capital). Without at least two factors of production, factor abundance and factor intensity cannot be defined.
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UGC NET Economics