country will have a comparative advantage in agricultural production and
the second in goods that use much labour and little land.
According to the Heckscher-Ohlin theory, countries have comparative advantages in the
production of goods that use intensively the factors of production with which they are
abundantly endowed.For example, Canada is abundantly endowed with forests relative to most
other countries. According to the Heckscher-Ohlin theory, Canada has a
comparative advantage in goods that use forest products intensively, such
as paper, framing materials, raw lumber, and wooden furniture. In
contrast, relative to most other countries, Canada is sparsely endowed
with labour. Thus, Canada has a comparative disadvantage in goods that
use labour intensively, such as cotton or many other textile products.
Different Climates
The factor endowment theory provides only part of the entire explanation
for the sources of comparative advantage. Another important influence
comes from all those natural factors that can be called climate in the
broadest sense. If you combine land, labour, and capital in the same way
in Costa Rica and in Iceland, you will not get the same output of most
agricultural goods. Sunshine, rainfall, and average temperature also
matter. You can, of course, artificially create any climate you want in a
greenhouse, but it costs money to create what is freely provided
elsewhere.
A country’s comparative advantage is influenced by various aspects of its climate.