Sample Essay

On the other hand, neoclassical free trade theory described in the “Heckscher–Ohlin theorem: A country will export the good that uses intensively the factor in which it is relatively abundant”.  This model exerts the conclusion that countries differ in their relative productivities because of the difference in factors of production available to them. Countries utilize factors in which they have abundance and produce commodities accordingly. In theory, production and trade would help countries encash such abundant resources because excess output will be exported. Whereas, goods that require factors scarce in an economy can be imported.
In effect, comparative advantage implied that countries possessing advantage in producing agricultural or other simple products should relocate resources within the economy to focus on producing a specialized set of goods and vice versa. Following this dictate, many developing economies that were mostly agrarian channeled their resources to produce food commodities. On the other hand, their developed peers focused efforts on producing value goods, as they were more skilled at it. This theory had predicted that “trade between dissimilar countries implies a positive welfare effect on both countries since they can exploit their absolute and comparative advantages. Only costs of transporting goods between countries can keep them from exploiting those advantage”.   However, in practice developing nations focused themselves on producing goods that had lower international market value. Whereas, developed nations focused on further developing their technologies and produced goods with greater international market value. Therefore, developing nations stayed at a comparative disadvantage as compared to their developed counterparts.

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