📘 Factor Endowments Theory | 📅 1933 | 👤 Eli Heckscher & Bertil Ohlin

“The range of products made or grown for export would depend upon the relative availability of different factors in each country.”

📘 The Factor Endowments Theory, also known as the Heckscher-Ohlin (H-O) Theory, is an international trade theory developed by Eli Heckscher and expanded by Bertil Ohlin.

It was formally published in 1933 in Ohlin’s book titled “Interregional and International Trade.”

The theory explains how countries trade based on differences in factor endowments such as land, labor, and capital.

💡 Core Idea:

A country will export goods that intensively use its abundant and cheap factors of production, and import goods that require its scarce and expensive factors.

🧪 Example:

India has abundant labor.
Germany has abundant capital.
Textiles are labor-intensive; machinery is capital-intensive.

📦 According to the H-O Theory:

India will export textiles.
Germany will export machinery.

❗ Leontief Paradox

Leontief Paradox (1953): The Leontief Paradox is a famous empirical contradiction of the Heckscher-Ohlin (H-O) Theory.

📊 Example (Leontief’s Study):

Leontief analyzed U.S. trade data and found that the U.S., despite being capital-abundant, was exporting labor-intensive goods and importing capital-intensive goods — contrary to what the H-O theory predicted.

This surprising result became known as the Leontief Paradox.