How does HO model mark an improvement over the theory of comparative cost?

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2026-03-06 12:10

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The Heckscher-Ohlin (HO) model improves upon the theory of comparative cost by incorporating factor endowments—such as labor and capital—into the analysis of international trade. Unlike the comparative cost theory, which focuses solely on the relative opportunity costs of producing goods, the HO model explains how countries export goods that utilize their abundant factors of production. This leads to a more comprehensive understanding of trade patterns, as it accounts for both resource availability and production technologies, ultimately providing a clearer framework for predicting trade flows and the distribution of gains from trade.

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