The Heckscher-Ohlin model is a widely recognized economic theory in international trade that explains the source of comparative advantage among countries. In this model, the correct answer is Option C – “factor endowments.” Let’s explore why this answer is correct and why the other options, A, B, and D, are not accurate.

Option C – Factor endowments:

The Heckscher-Ohlin model asserts that the source of comparative advantage for a country lies in its factor endowments. Factor endowments refer to a nation’s stock of productive resources, which primarily includes labor, capital (physical and human), and land.

The model argues that countries will specialize in the production of goods that make the most efficient use of their specific factor endowments. Here’s why this answer is correct:

1. Specialization:

Comparative advantage, according to the Heckscher-Ohlin model, is determined by the relative abundance or scarcity of these factors in a given country. For example, a country with a surplus of skilled labor may have a comparative advantage in industries that require skilled labor, such as technology or manufacturing.

Conversely, a country with abundant land resources may excel in agriculture. Thus, factor endowments are pivotal in guiding a country’s specialization in certain industries.

2. Trade:

The model explains that countries will trade with one another based on these differences in factor endowments. For example, a country rich in natural resources but lacking a skilled labor force may trade its resources for manufactured goods from another country with abundant skilled labor.

This trade allows each country to benefit from its comparative advantage, leading to higher overall production and economic welfare.

Now, let’s explore why the other options are not correct:

Option A – Technology:

The Heckscher-Ohlin model does not emphasize technology as the primary source of comparative advantage. While technology can certainly play a role in shaping a country’s competitiveness in international trade, the model’s core focus is on factor endowments.

Technology can affect the efficiency of production but is not the central determinant of comparative advantage as postulated by the Heckscher-Ohlin model. In this model, it is the relative availability of factors like labor, capital, and land that drive specialization and trade.

Option B – Advertising:

Advertising is not a source of comparative advantage according to the Heckscher-Ohlin model. Comparative advantage in this economic framework is based on the inherent factor endowments of a country, such as its labor force, natural resources, and capital.

While advertising can certainly influence a product’s market success, it is not the fundamental driver of a country’s comparative advantage. Comparative advantage is rooted in the ability of a country to efficiently produce goods based on its factor endowments.

Option D – Both (a) and (c):

Option D suggests that the source of comparative advantage lies in both technology and factor endowments. While technology can influence a country’s competitiveness in international trade, it is not considered the primary source of comparative advantage in the Heckscher-Ohlin model.

The model specifically focuses on factor endowments as the primary determinant of comparative advantage. Technology may enhance a country’s ability to utilize its factors efficiently, but it is secondary to the model’s core concept.

In summary, according to the Heckscher-Ohlin model, the primary source of comparative advantage for a country is its factor endowments, which include labor, capital, and land resources. The model highlights how differences in these factor endowments among countries lead to specialization and international trade, allowing nations to benefit from their relative strengths.

While technology, advertising, and other factors can certainly influence trade competitiveness, they are not the central focus of the Heckscher-Ohlin model, which centers on the role of factor endowments in shaping comparative advantage and trade patterns.