HECKSCHER–OHLIN THEOREM

The Heckscher–Ohlin theorem is one of the four critical theorems of the Heckscher–Ohlin model. It states that a country will export goods that use its abundant factors intensively, and import goods that use its scarce factors intensively. In the two-factor case, it states: "A capital-abundant country will export the capital-intensive good, while the labor-abundant country will export the labor-intensive good."
The critical assumption of the Heckscher–Ohlin model is that the two countries are identical, except for the difference in resource endowments. This also implies that the aggregate preferences are the same. The relative abundance in capital will cause the capital-abundant country to produce the capital-intensive good cheaper than the labor-abundant country and vice versa.
Initially, when the countries are not trading: * the price of the capital-intensive good in the capital-abundant country will be bid down relative to the price of the good in the other country, * the price of the labor-intensive good in the labor-abundant country will be bid down relative to the price of the good in the other country.
Once trade is allowed, profit-seeking firms will move their products to the markets that have (temporary) higher price. As a result: * the capital-abundant country will export the capital-intensive good, * the labor-abundant country will export the labor-intensive good.

At heart, the Heckscher-Ohlin model seeks to mathematically explain how countries should operate when resources are not distributed equally around the world. For example, some countries have ample oil reserves but little iron ore, while other countries have access to precious metals but not agriculture. The model goes beyond tradable commodities by also including other factors of production, such as labor. Because global labor costs vary, countries