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The factor-endowments-driven model (FED model) has errors much greater than the HOV model. [12] Unemployment is the vital question in any trade conflict. Heckscher–Ohlin theory excludes unemployment by the very formulation of the model, in which all factors (including labour) are employed in the production. [13]
The Heckscher–Ohlin theorem is one of the four critical theorems of the Heckscher–Ohlin model, developed by Swedish economist Eli Heckscher and Bertil Ohlin (his student). In the two-factor case, it states: "A capital-abundant country will export the capital-intensive good, while the labor-abundant country will export the labor-intensive good."
Within international business, the diamond model, also known as Porter's Diamond or the Porter Diamond Theory of National Advantage, describes a nation's competitive advantage in the international market. In this model, four attributes are taken into consideration: factor conditions, demand conditions, related and supporting industries, and ...
The main motivation for the development of NTT was that, contrary to what traditional trade models (or "old trade theory") would suggest, the majority of the world trade takes place between countries that are similar in terms of development, structure, and factor endowments. Traditional trade models relied on productivity differences (Ricardian ...
Since 1817, economists have attempted to generalize the Ricardian model and derive the principle of comparative advantage in broader settings, most notably in the neoclassical specific factors Ricardo-Viner (which allows for the model to include more factors than just labour) [19] and factor proportions Heckscher–Ohlin models.
Linder proposed an alternative theory of trade that was consistent with Leontief's findings. The Linder hypothesis presents a demand based theory of trade in contrast to the usual supply based theories involving factor endowments. Linder hypothesized that nations with similar demands would develop similar industries.
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The analysis and prediction of trade patterns through effective endowments and virtual endowments logically covered both the Heckscher-Ohlin trade pattern and the Leontief (paradox) trade pattern. Both are trade consequences, and both gain from trade. It shows that comparative advantage works when countries have different productivities.