Ohlins Modern Theory Vs Classical Ricardian Theory

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 divergence amidst internal together with international trade

According to the Classical economists, in that location is a withdraw for a dissever theory of international merchandise because of the differences betwixt internal together with international trade.

But according to Ohlin, in that location is no withdraw for a dissever 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 particular characteristic of international trade.

According to Ohlin, the regulation of comparative cost is applicable to all trade; whether internal or international.

4. Cost divergence is expressed inwards terms of money

Superiority of H.O. theory lies inwards the fact that it calculates the cost differences inwards terms of money. Ricardo explains the divergence inwards terms of labour theory of value of which is amount of defects together with impracticable. Trade which involves substitution of goods together with services has been carried inwards terms of money. H.O. theory renders the displace of the merchandise tardily to understand.

5. Supply of factors of production considered

The principal displace of the international merchandise is the divergence inwards ingredient supplies betwixt the countries. Each soil differs inwards ingredient endowments i.e. inwards their abundance or scarcity. Difference inwards supply, given the demand, brings the divergence inwards cost of ingredient together with finally, the divergence inwards commodity prices. In Ricardian theory, divergence inwards ingredient (labour) efficiency is recognized only divergence inwards ingredient furnish is ignored. H.O. theory, so provides a meliorate explanation of cost divergence of factors through the divergence is their supplies.

6. Contribution to positive economies

Ricardian theory which no doubtfulness explains the argue for internal merchandise is to a greater extent than concerned amongst the benefits of trade. For classical economists, the welfare facial expression of merchandise is to a greater extent than important. Ohlin has adapted a positive approach inwards explaining the displace of international trade. His principal trouble concern was to detect out the displace of merchandise together with non together with then 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, divergence inwards the cost ratios betwixt countries are due to the divergence inwards the science together with efficiency of labour. It implies that in that location volition last no merchandise inwards time to come if the ii countries choose mastered each other's technique together with labour becomes every bit efficient inwards both.

But Ohlin's theory asserts that merchandise volition never goal fifty-fifty if noesis travels freely betwixt the countries together with the best techniques of production are ever known to both countries. This is because, the modern theory states that the relative differences inwards ingredient endowments are the relative causes for the differences inwards the prices of commodities.

Thus the modern theory is an improvement over the classical theory.