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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."
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The Rybczynski theorem was developed in 1955 by the Polish-born English economist Tadeusz Rybczynski (1923–1998). It states that at constant relative goods prices, a rise in the endowment of one factor will lead to a more than proportional expansion of the output in the sector which uses that factor intensively, and an absolute decline of the output of the other good.
The results of the H–O model are that the pattern of international trade is determined by differences in factor endowments. It predicts that countries will export those goods that make intensive use of locally abundant factors and will import goods that make intensive use of factors that are locally scarce.
An additional robust corollary of the theorem is that a compensation to the scarce factor exists which will overcome this effect and make increased trade Pareto optimal. [3] The original Heckscher–Ohlin model was a two-factor model with a labor market specified by a single number. Therefore, the early versions of the theorem could make no ...
Marc Melitz and Pol Antràs started a new trend in the study of international trade. While new trade theory put emphasis on the growing trend of intermediate goods, this new trend emphasizes firm level differences in the same industry of the same country and this new trend is frequently called 'new' new trade theory (NNTT).
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.