How does the Heckscher-Ohlin model explain the basis of comparative advantage? Also, critically discuss the policy implications of this model for developing countries.

As the Nations in the world become closer and closer nowadays, the international trade seems to be another way for them to communicate with each other. Obviously everyone knows that some international trade is beneficial, while nations generally gain from international trade, however it is quite possible that international trade may hurt particular groups within nations. The reason that international trade produces this increase in world output is that is allows each country to specialize …showed first 75 words of 2503 total…

…showed last 75 words of 2503 total…the markets that temporarily have the higher price. Thus the capital-abundant country will export the capital-intensive good since the price will be temporarily higher in the other country. Likewise the labour-abundant country will export the labour-intensive good. Trade flows will rise until the price of both goods is equalized in the two markets. The H-O theorem demonstrates that differences in resource endowments as defined by national abundances are one reason that international trade may occur.