Hescher-Ohlin

1.Introduction

Africa is a very rich continent. Africa is known as a continent which is rich in natural resources and with a vast size of land. This resources have become the main income from foreign trades. Foreign Trade is the genus of all trade; Countries export and import goods and services with each other so they can benefit each other. International economics had developed many theories that explain foreign trades between countries, with comparative advantage as the main reason that countries trade. The Heckscher–Ohlin theory is one of the theories that were developed in order to explain trade. This essay will argue that the Heckscher-Ohlin theory can explain the export activities in Africa. This will be done by explaining the Heckscher-Ohlin theory in details and also by looking at the export structure and the empirical test of the Heckscher-Ohlin model in Africa.

2. The Heckscher-Ohlin theory

The Heckscher–Ohlin theory is a modern international economics theory, created by Eli Heckscher and Bertil Ohlin. It is based on David Ricardo's theory of comparative advantage by forecasting patterns of commerce and production based on the factor endowments of a trading country. The Heckscher–Ohlin model contained two countries, have two commodities that could be produced and there are two factors of production that is why it is called the “2×2×2 model”. The theory essentially states a country will export the final goods which makes relatively intensive use of the relatively abundant and cheap factor of production. Countries have comparative advantages in those goods because the productivity of the goods relies on costs that are contributed. Goods that need inputs that are locally abundant will be cheaper to produce than those goods that require inputs that are locally scarce, for example labor and land are relatively abundant in Africa and capital is scarce, this continent is also a natural resource intensive continent which requires a lot of labors and land to...