Pros And Cons Of O-Ring Theory

The Hecksher-Ohlin theory famously states about international trade, that in a two-nation, two-commodity model, considering that one of the nations and one of the commodities is labour intensive, and the other nation and the other commodity is capital intensive, (labour and capital being the only factors of production) that the capital intensive nation produces and exports the capital intensive good, while the labour intensive nation produces and exports the labour intensive good. In 1954, Wassily Leontief, gave the Leontief paradox, stating that in the year 1947(majorly) U.S.A, a highly capital intensive economy produced and exported labour intensive goods and that this opposed the H-O theory. There were many speculations …show more content…
This implies that free trade will equalize the wages of workers and the rents earned on capital throughout the world. ” And the O-Ring theory of Economic Development states that “tasks of production must be executed proficiently together in order for any of them to be of high value” A very central theme of the O-Ring theory is Assortative Matching, one which says, in a sense, that the best should be matched with the best for the most optimal set of results. My conclusion of proving the Leontief’s Paradox is not directly related to the O-ring theory, but rather this concept of Assortative Matching over Mixing to …show more content…
Assortative matching, that is matching the best with the best, could be used the explain why U.S.A produced and exported labour intensive goods. Exporting labour intensive goods would mean that U.S.A would act as a labour intensive economy. This would cause the labour wages or the real income to ‘rise’. Also, the capital investment into the future through ‘human capital development’ would ensure a country that stands apart, a country that would have the best match to give it an edge from other