Factor Endowment Theory

CORE DEFINITION

The Heckscher-Ohlin theory, which states that countries export products that intensively use their relatively abundant factors and import products that intensively use their relatively scarce factors. Capital-abundant countries export capital-intensive products, and labor-abundant countries export labor-intensive products. Scaffolding role: trade pattern prediction. It provides an analytical framework for understanding the distribution of global industrial chains. In investment decisions, it helps predict how industries will shift as factor endowments change (e.g., rising labor costs), and which countries and industries will benefit or suffer.