Who is Bertil Ohlin
Bertil Ohlin was a Swedish economist who received the 1977 Nobel Memorial Prize in Economics, along with James Meade, for his research on international trade and international capital movements. Ohlin was born in 1899 in Sweden and died in 1979. He held a Ph.D. from Stockholm University and taught at the University of Copenhagen and the Stockholm School of Economics.
BREAKING DOWN Bertil Ohlin
Ohlin developed a highly influential theory of international trade, the Hecksher-Ohlin model, along with his instructor, Eli Hecksher. The model, which ties in with David Ricardo's theory of comparative advantage, says that countries will export those goods that they can produce cheaply and import those goods that are expensive to produce. A country's relative advantages or disadvantages in land, labor and capital will determine what it makes most sense for the country to import and export. The Hecksher-Ohlin theory states that countries will specialize in industries where they can utilize their resources with the most efficiency.
Bertil Ohlin's Heckscher-Ohlin Theory
The Heckscher-Ohlin Theory, which is derived from the Heckscher–Ohlin model of international trade asserts that trade between two countries is proportionately relative to their capital and labor. In countries with an abundance of capital, wage rates tend to be high; therefore, labor-intensive products, such as textiles and simple electronics are more costly to produce internally. On the other hand, capital-intensive products, like automobiles and chemicals, are less costly to produce internally. Countries with large amounts of capital will export capital-intensive products and import labor-intensive products with the proceeds. Countries with high amounts of labor will do the reverse.
For the Heckscher-Ohlin model to apply to two trading countries, the following conditions must be true:
- Prime production factors, namely labor and capital, are not available in the same proportion in both countries
- The two countries' goods either require more capital or more labor
- Labor and capital do not move (are not shared) between the two countries
- There are no costs associated with transporting the goods between countries
- The citizens of the two trading countries have the same needs
The theory does not depend on total amounts of capital or labor, but on the amounts per worker. This allows small countries to trade with large countries by allowing them to specialize in products that require resources that are more available than they are to the trading partner. The key assumption is that capital and labor are not available in the same proportions in the two countries. Specialization, in turn, benefits the country’s economic welfare. The greater the difference between the two countries, the greater the gain from specialization.