HECKSCHER – OHLIN THEORY
Q. Consider the following concepts :
I. Leontief paradox
II. Linder Hypothesis
Which among the following can be treated as an exception to the conclusions of the Heckscher-Ohlin theory? Answer from the codes below :
(1) Both I and II are exceptions. (2) Neither I nor II are exceptions.
(3) Only I is an exception. (4) Only II is an exception.
ANS: (1) Both theories can be considered as exceptions to the H-O model of international trade. H-O theory argued that a country exports the good which uses the abundant and cheap factor of production available in that country. But Leontief identified that despite being a capital intensive country, USA produced and exported more labour intensive goods. And for him, factor endowment is not the sole factor determining the international trade. Other than that, those factors such as technology, the technique of production, different qualities of labour etc also influence international trade.
Staffan Linder in 1961 pointed out that those countries with similar per capita should trade with each other more intensively. This was the first demand-based theory in international trade. Nations with similar per capita income will have a similar demand pattern and thus they will develop similar industries and trade with each other.