factors of production between countries, and ii) differences in the factor proportions required in production. Assumptions . There are two countries, two commodities and two factors. (2x2x2 model) Factor endowment model Developed by Heckscher and Ohlin Countries with a relative factor abundance can specialise and trade Abundance of skilled labour → specialisation → export → exchange for goods are services produced by countries with abundance of unskilled labour Exports embody the abundant factor Imports embody the scarce factor Assumes a high degree of factor mobility - - International Economics .
Countries differ in factor endowments. . Commodities are categorized in terms of factor intensity. .
Countries use same production technology. . Countries have identical demand conditions. .
There is perfect competition in both product and factor markets in both the countries.