ds that a country will tend to export the commodities that use relatively more of the factors of production that are relatively more abundant in that country. The theory is based on an assumption that different countries have different quantities of the factors of productionùland, raw materials, labor, and capital. In effect, the Heckscher-Ohlin theory explains why the theory of comparative advantage is valid (colander, 2003).
Comparative advantages exist when two countries each are capable of producing multiple goods. In such cases, Country A may be able to product good C more efficiently than can Country B, while country C may be able to produce Good D more efficiently than can country A. In such an instance, the comparative advantages of Country A (Good C) and Country B (Good D) establish a basis for mutual trade based on the law of comparative advantage. An example of comparative advantages may be found in New Zealand and China. Each country has the capacity to produce wool, and each country has the capacity to convert wool into clothing. New Zealand (because of its climate, land, and animal husbandry expertise) has a comparative advantage that enables it to produce wool more efficiently than is possible for China.
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