Ricardian Model of International Trade
Ricardo had propounded the comparative advantage theory of international trade. According to this theory countries would specialise in the production of commodities which they can produce at a comparatively cheaper rate. Exchange of goods between two countries would be based on this principle of comparative advantage, each exchanging goods that they produce the best. The ratio of labour to capital in a particular country does not enter into the theory of comparative advantage.Heckscher-Ohlin Model
Heckscher-Ohlin formulated the international trade theory as an alternative to the theory of comparative advantage as propounded by Ricardo. According to this model the trade pattern is governed by the difference in the ratio of labour to capital between the two countries. The country abundant in a particular factor of production would intensively use it to produce a particular good. The good will then be exported to countries which has the alternative factor abundance. Similarly goods would be imported from countries that have the alternative factor abundance. This is how trade relations would be set between these countries. The Leontief Paradox invalidated the model proposed by Heckscher-Ohlin. It was seen that the United States exported labour intensive products even when it was a capital abundant country.
