Examination of suitability of factor endowment theory with the reflection on transportation cost in international business

Abstract

International Business is a device which provides a support of convenience of exchanging goods or services or both between two or more countries. More prominently in a condition, one good is available abundant in one country and in the identical point of time there is a dearth and much demand from another country for the same or similar goods. During 18th and 19th century a number of international trade theories came into force with the aim of identifying course of action for smooth carrying of business by countries through export and import. Factor Endowment Theory is one of international trade theories focuses on effective international business with the optimum utilization of factors of production. The Factor Endowment theory was contributed by the Swedish Economists Eli Heckscher and Bertil Ohlin. It focuses on smoothening of international business in terms of exports and imports by using abundant factors of production and attaches the restraint on trade in order to get comparative advantage. One country must produce those products associated with such country‘s abundant factor of production and import those products which are difficult to produce or the production leads to high product cost on account of lack of associated factor of production. This argument is justified on the premise that the exporting country is capable of producing the product with relatively low cost by effectivelyexploiting the associated abundant factor of production. Factor Endowment Theory holds valid only within the framework of assumptions. This paper examines the relationship between availability of abundant factors of production and international business with the profound connection with the transportation cost and essentially focuses on suitability of factor endowment theory with current trend.