Hecksher-Ohlin theorem | Trade theory

The Hecksher-Ohlin theorem is a theory that explains why there are comparative advantages. According to the Heckscher-Ohlin theorem, comparative advantages arises because countries is rich in various production factors in a relative manner.

The Hecksher-Ohlin theorem explains that countries may be relatively wealthy in labor or capital. A country is rich in labor if the relationship between labor and capital is to the advantage of labor according to the Heckscher-Ohlin theorem.

Heckser and Ohlin argue that a country that is rich in labor have a comparative advantage in the production of labor-intensive products and a country that is rich in capital has a comparative advantage in the production of capital-intensive products.