1. Ricardian theorem, HO theorem, definition, explanation
One of the most well-known explanations of international trade is the Ricardian theory of comparative advantage. The theory’s distinctive contribution lies in its main tenet that even if one country is more efficient in absolute terms in producing goods than another, short run gains from trade can be obtained if it specializes in the production and export of the goods which it produces relatively efficiently, i.e. in which it holds a comparative advantage.
The Heckscher-Ohlin (HO) theorem posits that a country’s endowments of factors of production (labour, capital and land/natural resources), rather than relative efficiencies of production, determine its comparative advantage. Thus, countries such as Tanzania, which have a large supply of labour and land as well as plentiful natural resources of wildlife, mountains and beaches, would appear to have a comparative advantage in tourism. The HO theorem has been applied to the agricultural and manufacturing sectors and attention has generally focused on the endowments of labour and capital.
Ricardian theory is useful in indicating the gains which countries can make from international tourism if they are relatively efficient in tourism production and, hence, points to the importance of increasing production efficiency. The HO theorem’s emphasis on the role of countries’ different resource endowments also helps to explain international trade and tourism. 2 International tourism and imperfect markets
On the supply side, tourism markets are characterized by a multiplicity of structures and tourism products and on the demand side, consumers demand a wide range of types of holidays. The fact that tourism supply involves products of particular types and consumers demand tourism products of particular qualities implies that insights from theories of international