Bertil Ohlin was raised inKlippan, Scania with seven siblings, where his father Elis was a civil servant and bailiff. His mother Ingeborg influenced him with her left-liberal views on the society, with Nordic partnership andKarl Staaff as her role model. He received his B.A. fromLund University 1917 at the age of 18 and his MSc. fromStockholm School of Economics in 1919.[1]
In 1933, Ohlin publishedInterregional and International Trade.[1][6][7][8] Ohlin built in it an economic theory of international trade from earlier work by Heckscher and his own doctoral thesis.[1] It is now known as theHeckscher–Ohlin model, one of the standard model economists use to debatetrade theory.
The model was a breakthrough because it showed howcomparative advantage might relate to general features of a country'scapital and labor, and how those features might change through time. The model provided a basis for later work on the effects of protection onreal wages, and has been fruitful in producing predictions and analysis; Ohlin himself used the model to derive theHeckscher–Ohlin theorem, which predicts that capital-abundant countries export capital-intensive goods, while labor-abundant countries export the labor-intensive goods.
The Heckscher–Ohlin Theorem, which is concluded from theHeckscher–Ohlin model of international trade, states: trade between countries is in proportion to their relative amounts of capital and labor. In countries with an abundance of capital, wage rates tend to be high; therefore, labor-intensive products, e.g. textiles, simple electronics, etc., are more costly to produce internally. In contrast, capital-intensive products, e.g. automobiles, chemicals, etc., are less costly to produce internally. Countries with large amounts of capital will export capital-intensive products and import labor-intensive products with the proceeds. Countries with high amounts of labor will do the reverse.
The following conditions must be true:
The major factors of production, namely labor and capital, are not available in the same proportion in both countries.
The two goods produced either require more capital or more labor.
Labor and capital do not move between the two countries.
There are no costs associated with transporting the goods between countries.
The citizens of the two trading countries have the same needs.
The theory does not depend on total amounts of capital or labor, but on the amounts per worker. This allows small countries to trade with large countries by specializing in production of products that use the factors which are more available than its trading partner. The key assumption is that capital and labor are not available in the same proportions in the two countries. That leads to specialization, which in turn benefits the country's economic welfare. The greater the difference between the two countries, the greater the gain from specialization.
Wassily Leontief made a study of the theory that seemed to invalidate it. He noted that the United States had a lot of capital; therefore, it should export capital-intensive products and import labor-intensive products. Instead, he found that it exported products that used more labor than the products it imported. This finding is known as theLeontief paradox.
Bertil Ohlin on Nobelprize.org including the Prize Lecture on 8 December 19771933 and 1977 – Some Expansion Policy Problems in Cases of Unbalanced Domestic and International Economic Relations
