Introduction In the real world, while trade is partly explained by differences in labor productivity, it also reflects differences in countries' resources The Heckscher-Ohlin theory Emphasizes resource differences as the only source of trade Shows that comparative advantage is influenced by Relative factor abundance(refers to countries) Relative factor intensity(refers to goods Is also referred to as the factor-proportions theory Copyright C 2003 Pearson Education, Inc Slide 4-3Copyright © 2003 Pearson Education, Inc. Slide 4-3 Introduction ▪ In the real world, while trade is partly explained by differences in labor productivity, it also reflects differences in countries’ resources. ▪ The Heckscher-Ohlin theory: • Emphasizes resource differences as the only source of trade • Shows that comparative advantage is influenced by: – Relative factor abundance (refers to countries) – Relative factor intensity (refers to goods) • Is also referred to as the factor-proportions theory