This theory was propounded by Eli-heckscher(1879-1952) and

later refined by Swedish economist Bertil Ohlin(1899-1979)

in 1933.

Acoording to Ohlin, the differences in the factor prices

are due to the differences in the factor endowments in

different countries and the differences in production

functions for different commodities. Hence Ohlin's theory

can be called factor endowment theory.

ASSUMPTIONS OF THEORY

1.There are 2 countries or regions say X and Y, each having

a free papre currency of producing any two commodities.

2. There are 2 factors of production i.e. labour and

capital.

3. the factors of production are fully mobilewithin each

region of a country while they are rtelatively immobile in

between any two regions or two countries.

4. Competition in all markets.

5. Each factor is fully employed in each country with or

without trade.

6. There are no transportation of information costs.

7. There are no imposed tarrifs or other barriers to trade.

8. All production functions are lineally homogeneous.

9. All production functions are immune to factor intensity

reversals.

10. Both countries produce both goods with or without trade.