Heckscher-Ohlin Trade Theory

by Eli F. Heckscher

This book presents the corrected and first complete translation from Swedish of Heckscher's 1919 article on foreign trade - "a work of genius," in the words of Paul Samuelson - as well as a translation from Swedish of Ohlin's 1924 Ph.D. dissertation, the main source of the now famous Heckscher-Ohlin theorem. Ohlin's model of the international economy is astonishingly contemporary, dealing as it does with economies of scale, factor mobility, trade barriers, nontraded goods, and balance-of-payments adjustment, among others. Much more compact than later versions of Ohlin's work, Ohlin's thesis clearly reveals the structure of his approach. In a lengthy introduction the editors trace the origins of the Heckscher-Ohlin theory from Wicksell to Heckscher and from Cassel and Heckscher to Ohlin. They compare Ohlin's version with the modern interpretations and extensions of the theory as developed by Paul Samuelson, Ronald Jones, and many other contemporary economists.

Heckscher's original article explains the impact of differences in factor endowments on intercountry income distribution and international specialization, and demonstrates that the resulting trade in mobile goods is a substitute for factor mobility in reducing factor-price differentials. His brilliant insights were propagated through the writings, in English, of his student Bertil Ohlin. Ohlin's dissertation contains virtually all of the breakthroughs that were eventually to win him, in 1977 the Nobel Prize, particularly his replacement of the century-old Ricardian labor-cost theory of comparative advantage with a multifactor general-equilibrium formulation in the tradition of Léon Walras and Gustav Cassel.

234 pages, Hardcover

First published June 17, 1991

Reviews

[Dorotea · Rating 4 out of 5]

In the Heckscher-Ohlin model countries still gain from trade by specializing according to comparative advantage, but that comparative advantage comes from resource endowments rather than productivity.
Considering the great specialization with cattle in Argentina and cotton in England (19th century), Ricardo’s theory explains the fact that Argentina exports beef to England by Argentina having a lower opportunity cost for beef than England, and the low opportunity cost due to higher productivity i.e. Argentina’s ability to produce relatively more beef than England with the same resources. Heckscher agrees on the first point, but disagrees on the second: Argentina and England were using the same production technologies for beef and thus had the same productivity, but Argentina’s opportunity cost is indeed lower because it has a lot of the resources needed for beef production i.e. land relative to other resources e.g. labour. Therefore Heckscher conjectured that countries with a relatively high endowment of some production factor specialize in goods which use that factor relatively intensively.
Really interesting.