Comparison - H.O Theory Vs Ricardian Theory ↓
The wages or superiority of Ohlin's Modern Theory over the Ricardian Classical Theory of international merchandise gets highlighted from the next of import points of comparison.
1. No departure alongside internal together with international trade
According to the Classical economists, in that place is a require for a split theory of international merchandise because of the differences betwixt internal together with international trade.
But according to Ohlin, in that place is no require for a split theory of international trade, as telephone substitution regulation of both is same.
2. More variables
As against Ricardian Theory which is based on ii countries, ii commodities together with ane factor, Ohlin's Modern theory incorporates ii countries ii commodities together with ii factors.
3. Comparative cost theory
According to the classical theory, the regulation of comparative costs is a exceptional characteristic of international trade.
According to Ohlin, the regulation of comparative cost is applicable to all trade; whether internal or international.
4. Cost departure is expressed inward terms of money
Superiority of H.O. theory lies inward the fact that it calculates the cost differences inward terms of money. Ricardo explains the departure inward terms of labour theory of value of which is sum of defects together with impracticable. Trade which involves substitution of goods together with services has been carried inward terms of money. H.O. theory renders the sweat of the merchandise tardily to understand.
5. Supply of factors of production considered
The primary sweat of the international merchandise is the departure inward ingredient supplies betwixt the countries. Each province differs inward ingredient endowments i.e. inward their abundance or scarcity. Difference inward supply, given the demand, brings the departure inward cost of ingredient together with finally, the departure inward commodity prices. In Ricardian theory, departure inward ingredient (labour) efficiency is recognized simply departure inward ingredient provide is ignored. H.O. theory, hence provides a meliorate explanation of cost departure of factors through the departure is their supplies.
6. Contribution to positive economies
Ricardian theory which no incertitude explains the argue for internal merchandise is to a greater extent than concerned with the benefits of trade. For classical economists, the welfare human face of merchandise is to a greater extent than important. Ohlin has adapted a positive approach inward explaining the sweat of international trade. His primary work concern was to notice out the sweat of merchandise together with non together with so much of its welfare aspect. Therefore, it is pointed out that Ohlin's analysis has contributed to positive economical analysis.
Briefly Compare - Ricardian Theory Vs HO Theory ↓
Conclusion - Ohlin's Theory Vs Ricardian Theory ↓
In the classical analysis, departure inward the cost ratios betwixt countries are due to the departure inward the science together with efficiency of labour. It implies that in that place volition live on no merchandise inward hereafter if the ii countries accept mastered each other's technique together with labour becomes as efficient inward both.
But Ohlin's theory asserts that merchandise volition never cease fifty-fifty if noesis travels freely betwixt the countries together with the best techniques of production are e'er known to both countries. This is because, the modern theory states that the relative differences inward ingredient endowments are the relative causes for the differences inward the prices of commodities.
Thus the modern theory is an improvement over the classical theory.
