The Heckscher-Ohlin theory, also known as the factor-proportions theory, is an economic model that explains patterns of international trade based on factor endowments.

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The theory makes several key assumptions to derive its conclusions. Here are five major assumptions of the Heckscher-Ohlin theory:

Two Goods and Two Factors: The theory simplifies the analysis by considering an economy that produces only two goods and is endowed with two factors of production, typically capital and labor.
Constant Returns to Scale: The assumption of constant returns to scale ensures that doubling the inputs (capital and labor) leads to a proportionate doubling of outputs. This simplifies the analysis and allows for clear relationships between factor endowments and production.
Perfect Competition: The Heckscher-Ohlin model assumes perfect competition in both product and factor markets. This means that firms can enter or exit the market easily, and there are no distortions in factor prices.
Factor Immobile Between Industries: The theory assumes that factors of production (capital and labor) are immobile between industries but can move freely within industries. This implies that a factor can shift from one sector to another, but it cannot move internationally.
Technological Homogeneity: The model assumes technological homogeneity, meaning that the production technology is the same in both countries. The only difference lies in the factor endowments of the countries.

These assumptions help create a simplified framework to analyze how differences in factor endowments between countries influence comparative advantage, trade patterns, and factor prices. While these assumptions provide a foundation for understanding the Heckscher-Ohlin model, it’s important to note that real-world conditions may deviate from these idealized assumptions.