Question

In a Heckscher-Ohlin model, the Home country has 100 units of labor and the Foreign has 200. Which of the following is necessarily true?

	Home is labor-abundant.
	Foreign is labor-abundant.
	Home is capital-abundant.
	Foreign is capital-abundant.
	None of the above.

Answer 1

In Heckscher-Ohlin model it states that country will export goods that use abundant factors intensively and import goods which uses scarce resources intensively. Here foreign country has more labour than that of home. But we don't know the amount of capital. So we can not draw the conclusion which country is relatively labor abundant and which country is relatively capital abundant

For an example, home country has 50 units of capital and foreign country has 100 unit of capital

(L/K) of home=100/20=5

(L/K) of foreign = 200/100 =2. Therefore the home is relatively more labor abundant.

Again if home country has 50 unit of capital and foreign has 200 unit of capital

(L/K) of home= 100/100=1

(L/K) of foreign =200/100=2/ Here foreign is relatively more labor abundant.

Therefore none of the above is the correct option.