Which theory argued that comparative advantage arises from differences in national factor endowments?

What Is a Factor Endowment?

A factor endowment represents how many resources a country has at its disposal to be utilized for manufacturing—resources such as labor, land, money, and entrepreneurship. Countries with large or diverse factor endowments are typically more wealthy and able to produce more goods than countries with small factor endowments. Factor endowments also affect the opportunity cost of specializing in producing certain goods relative to others.

As a result of the differences and variation in a country's endowments, factor endowment theory states in economic reasoning that these different breakdowns of capital to labor will determine a country's comparative advantage and what to manufacture or specialize an economy on.

A comparative advantage exists when the opportunity cost of specialization is lower than that of other nations. The existence of a comparative advantage is, in turn, affected by things such as abundance, productivity, cost of labor, land, and capital. Other factors also might influence a country's comparative advantage in practical terms, such as a highly developed financial system or economies of scale.

Factor endowments are the land, labor, capital, and resources that a country has access to, which will give it an economic comparative advantage over other countries.

Examples of Factor Endowments

A simple example of a factor endowment with respect to land would be the presence of geographic scale or natural resources such as oil. Countries with abundant oil tend to export oil, redirecting internal resources toward producing the factor they have in quantity. As of 2019 data, Angola is an extreme example of such specialization: oil accounts for more than 86% of its exports. Other countries, such as the Democratic Republic of Congo (DRC), is one of the countries sitting on Africa's copper belt, which holds more than two-thirds of the entire world's cobalt, as per a 2020 USGS report. Cobalt, used in rechargeable batteries for electronic gadgets like cellphones, laptops, and even electric cars, is in high demand—meaning, countries like the DRC have heavily relied on mining this resource, leading even to political tensions over this resource.

On the other hand, countries such as the United States that own more acreage can diversify its efforts; capitalizing on soil-rich regions for agricultural production, while using the coasts for exports, and taking advantage of a larger population and labor force.

Speaking of labor, labor is a key input in most products, from agriculture to cellphones, and its characteristics affect a country's comparative advantage. An abundant labor force means that a country has a lower opportunity cost of specializing in labor-intensive activities. A highly skilled labor force is more expensive and more productive than an unskilled labor force. For example, as China's labor force has grown more skilled, wages have risen and China has begun specializing in more complex manufactured goods.

Changing Factor Endowments

Factor endowments are not static. With education, for example, the characteristics of the labor force can change. The same holds true for investments in capital and infrastructure. Over time, both can affect a country's sources of comparative advantage. As a country develops more complex transportation systems, buildings, and public services, a labor force may be more available to take on complex jobs.

Get help with access

Institutional access

Access to content on Oxford Academic is often provided through institutional subscriptions and purchases. If you are a member of an institution with an active account, you may be able to access content in one of the following ways:

IP based access

Typically, access is provided across an institutional network to a range of IP addresses. This authentication occurs automatically, and it is not possible to sign out of an IP authenticated account.

Sign in through your institution

Choose this option to get remote access when outside your institution. Shibboleth / Open Athens technology is used to provide single sign-on between your institution’s website and Oxford Academic.

1. Click Sign in through your institution.
2. Select your institution from the list provided, which will take you to your institution's website to sign in.
3. When on the institution site, please use the credentials provided by your institution. Do not use an Oxford Academic personal account.
4. Following successful sign in, you will be returned to Oxford Academic.

If your institution is not listed or you cannot sign in to your institution’s website, please contact your librarian or administrator.

Sign in with a library card

Enter your library card number to sign in. If you cannot sign in, please contact your librarian.

Society Members

Society member access to a journal is achieved in one of the following ways:

Sign in through society site

Many societies offer single sign-on between the society website and Oxford Academic. If you see ‘Sign in through society site’ in the sign in pane within a journal:

1. Click Sign in through society site.
2. When on the society site, please use the credentials provided by that society. Do not use an Oxford Academic personal account.
3. Following successful sign in, you will be returned to Oxford Academic.

If you do not have a society account or have forgotten your username or password, please contact your society.

Sign in using a personal account

Some societies use Oxford Academic personal accounts to provide access to their members. See below.

Personal account

A personal account can be used to get email alerts, save searches, purchase content, and activate subscriptions.

Some societies use Oxford Academic personal accounts to provide access to their members.

Viewing your signed in accounts

Click the account icon in the top right to:

• View your signed in personal account and access account management features.
• View the institutional accounts that are providing access.

Signed in but can't access content

Oxford Academic is home to a wide variety of products. The institutional subscription may not cover the content that you are trying to access. If you believe you should have access to that content, please contact your librarian.

Institutional account management

For librarians and administrators, your personal account also provides access to institutional account management. Here you will find options to view and activate subscriptions, manage institutional settings and access options, access usage statistics, and more.

Which theory suggests that comparative advantage arises from differences in national factor endowments?

Which theory is based on difference in factor endowment?

Which theory argues that the pattern of international trade is determined by differences in national factor endowments?

Which theories are the theory of comparative advantage based on?