The modern theory of international trade is essentially a logical extension of the general equilibrium approach. The Heckscher-Ohlin-Samuelson (H-O-S) theorem is an empirically supported argument of Heckscher-Ohlin’s factor endowment theory developed by the Ohlin-Samuelson research programme in the field of international trade theory.

The H-O-S model of pure trade theory (two commodities, two factors, two countries) states that, under the given conditions, a country will export the commodity that uses its relatively abundant factor intensively and import the commodity that requires intensive use of its relative scarce factor in the production function.

Since the publication of Samuelson’s celebrated work on this theorem in 1948, a large number of trade theorists have focussed their attention on validating the factor endowment basis of international trade on empirical grounds.

Attempts have been made with little success to reverse the Leontief paradox which cited the case study of the United States to show that, though, the country is capital-abundant, its exports are of labour-intensive goods and imports constitute capital-intensive goods – which is quite contrary to the norm of H-O-S theorem.

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The conservative trade theorists, however, continue to adhere to the H-O-S theorem for two reasons. First, its ideology of supporting free trade and, second, its close connection with Walrasian general equilibrium theory which is consistent with perfect competition and monopolistic competition.

During the 1980s, however, a new brand of international economics has emerged which has successfully broken the grip of the single approach and sought to analyze the issues under relaxed assumptions and using variants of the H-O-S model.

Learner argues that, the Leontief paradox is based on some misunderstanding of the data. As a matter of fact, the U.S.’s net exports contain both capital and labour. In such a case, a correct test of the factor abundance should compare capital component in consumption per worker. Thus, a country is regarded as capital abundant when:

Applying this criterion to Leontief’s 1947 data, Learner observed that the U.S. was a capital- abundant country exporting capital-intensive goods and thus, substantiated the H-O-S theorem.

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Attempts have also been made by some empirical trade theorists to extend the H-O-S model to the situation of monopolistic competition in foreign trade, calling it Chamberlin-Heckscher-Olhin (C- H-O) approach for explaining intra-industry trade.

In general, trade theorists have continued to adhere to the standard Heckscher-Ohlin model on three considerations. First, its pedagogical base which serves as an accurate predictor of observed trade data, second, its ideological base of free trade; and third, it is embedded in the general equilibrium framework of the neo-classical research programme.

The Heckscher-Ohlin framework is generally acceptable for its explanatory role of national factor endowment differences in determining the pattern of net trade and specialization according to the principle of comparative advantage. In the modern world trade, however, a large and increasing part of trade is composed of intra-industry trade, that is, exchange of the same products and this phenomenon requires other explanations, such as, differences in economies of scale, demand preferences, product differentiation and technological gap hypotheses. These other factors are complements rather than substitutes to the basic hypothesis of relative cost differences as determined by factor endowments.