Heckscher-Ohlin model
/ HEK-sher OH-leen /
Why does Saudi Arabia export oil, Bangladesh export clothing, and Germany export machinery? A simple intuition: each country sells what it can make cheaply, and things are cheap to make when the ingredients they need are plentiful and therefore inexpensive there. Saudi Arabia is awash in oil; Bangladesh has abundant low-cost labour for stitching; Germany has lots of skilled engineers and capital. Countries tend to export the goods that lean heavily on whatever they have a lot of. That plain idea is the heart of the Heckscher-Ohlin model.
The Heckscher-Ohlin model, built by Swedish economists Eli Heckscher and Bertil Ohlin in the early 20th century, explains comparative advantage by a country's factor endowments — its relative supplies of land, labour, and capital. Its central prediction: a country will export goods that intensively use the factor it has in relative abundance, and import goods that use its scarce factor. A capital-rich country exports capital-intensive goods like machinery; a labour-rich country exports labour-intensive goods like garments. Where Ricardo explained trade by differences in technology, Heckscher-Ohlin explains it by differences in what countries are stocked with.
The model is one of the pillars of trade theory and yields a sharp, real-world implication: trade tends to raise the income of a country's abundant factor and lower that of its scarce one. In a labour-abundant country, opening to trade should help workers; in a capital-abundant country, it may pressure ordinary wages while rewarding capital owners — which is part of why trade can widen inequality within rich nations. Honesty requires noting a famous puzzle: in 1953 Wassily Leontief found that the capital-rich United States seemed to export labour-intensive goods, the opposite of the prediction — the 'Leontief paradox'. So the model captures a real force but is an incomplete picture; technology, scale, and skills all matter too.
Canada has vast forests and few people relative to its land, so it exports lumber and grain — land-intensive goods. Japan has little land but abundant capital and skilled workers, so it exports cars and electronics. Each country leans on the factor it has in abundance, just as Heckscher-Ohlin predicts.
Export what uses your abundant factor; import what uses your scarce one.
The model is influential but imperfect: the Leontief paradox showed real trade does not always match its predictions, because technology, skills, and economies of scale also shape what countries export.