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Factor Endowment Theory Example


Factor endowment identifies the degree of availability of resources inside a circumstance connected with a discussion. In financial research, the state’s aspect endowment can be realized to point out for you to the number of aspects connected with output, which is, labor, funds, land and also entrepreneurship attributable to the nation and also which can be taken advantage of with regard to creation (Reinert & Erick, 2008). Countries having somewhat much larger endowment incline to be extra wealthy compared to those with smaller sized endowment, all the other factors being identical. There’s need to establish credible establishments that can access and also equitably send out these types of methods in order that the nation to gain the greatest value from its aspect endowment.

The learning resource curse, generally known as paradox of lots, is a non-desirable predicament that will comes up in the event the establishments trusted with the country’s endowment don’t possess sound policies (Piros & Christopher, 2013). It is common knowledge that international locations and also areas having an abundance of natural resources, specifically point-source non-renewable resources like naturally occurring mineral deposits and fuel energy, are apt to have less economic development and also more serious development functionality compared to international locations having much less natural resources. That is hypothesized to be initiated by various causes, which include although not limited to decrease in competitive power of other economic sections, instability connected with income through the normal learning resource industry due to vulnerability for you to worldwide product current market swings, govt mismanagement connected with resources, or corrupted establishments that provide an easy path for revenue to be diverted away illegally.

Resource scarcity may sometimes be absolute or even relative. Absolute scarcity identifies where by you will find basically not enough amounts of resource to meet current need. We are unable to possess any extra resources irrespective of how we extend. General scarcity however, identifies an instance where by there might be actual amounts of any resource present yet scarcity is out there due to issues with regards to offer or even submitting or even distribution (Lin, Justin & Chang, 2009). Achieving the need for your resource may well indicate discovering reduced quality of resources.

Factor Endowment Theory Example

Diverse Countries Possess Various Endowment Degrees of Factors of Production

A vintage example inside focusing the purpose played by establishments/institutions inside making a state’s factor endowment can be that connected with North America; in the early twentieth millennium (Salvador &Domonic, 2001). Many experts have indicated why these countries enormously acquired a lot by borrowing a lot of Britain’s establishments/institutions and legislation. In as much as America gained greatly by that, it still isn’t clear entirely why the other new world which is also observed to have adored a great factor endowment and also access to British establishments wouldn’t develop in the same proportion. Basically, data shows that there was the sluggish connection between the success from the colonizing and the prosperity from the nest compared to quite a few acquired thought.

North America especially the US overtook many British founded colonies in the Caribbean place for example Barbados and also Jamaica. As being a fact, the United States went up as the world financial chief, calculated inside Gross Domestic Product (GDP) pa capita, a situation presented subsequently through the UNITED KINGDOM. In 1910s, the United States substituted the United Kingdom as the economic giant. This kind of explicitly features that were presently there must have created a different reason as to explain why the upcoming United States and Canada advances at a rate more rapidly compared to different colonies of Britain.

In their text “History Classes: Establishments, Component Endowments, and also Trails related to Expansion in the new world, Kenneth Sokoloff and also Stanley Engerman explain in their paper “History Classes: Establishments, Component Endowments, and also Trails related to Expansion in the new world that the change between America and the other the new world was not only inside establishments but with their own element endowments in nature. Republics such as Brazil and Cuba gained an incredibly enormous.

Better entry in education/training given with regard to higher investment within human resources, which typically increases the financial growth of Canada and the United States offered production. According to Sokoloff and also Engerman’s “History Classes: Establishments/Institutions, Factor Endowments, and also Trails related to Expansion in the New World, not only did the United States acquire somewhat equal distribution linked to prosperity, it had somewhat homogeneous population, political power, and also social capital. The somewhat equal distribution of the United States and also Canada.”

                Sokoloff postulated that in evolutions founded by great dissimilarity, the elites gain great power to impact the choices economic and legal institutions. In the countries which are not equal, minor elites control majority citizens’ rights, like education, to preserve the social status and continue getting themselves bests. The United States accomplished its economic prosperity primarily by the sale of forced labour and slave labour production. For example, when the elites supported initiatives to establish economic equality, rising literacy levels, the per capita U.S. Gross Domestic Product was ahead of other recognised countries with high literacy rates. It is important to recognise that factor endowments played a crucial role in forming colonial structures and economic growth; cash crops such as coffee, sugar and cotton, which were effectively produced by plantation systems, were cultivated by colonies with rich quality top soil. So, demand among the colonists for slave labour and peonage rose. Because of the vast inequalities created by the society to build a minute elite population relative to the large working population, by creating a secured franchise they preserved wealth and influence within elite clusters (Piros & Christopher, 2013).

Because of oppressive measures, the inequality in the cash crop generating colonies forced their economies to not expand and grow as rapidly as the United States and Canada. Policies in equal states hinder the educational development of the plurality of people who are only obligated to perform basic physical jobs; nevertheless, the U.S. and Canada encourage the involvement of their residents in schooling. As a result, with greater competitiveness supported by technical development, Canada and the United States are prospering.


There is a disparity between the developed and developing countries which is so excessive making competitions tough between the countries. Hence developed countries should take an initiative towards supporting a number of projects that would help them achieve development strategies so as to increase their resource base and acquire extra incomes for the right balance of the scarce resources. Developing states also must improve measures on the productivity by becoming more innovative and good investors on the modern technologies to produce high quality goods that can compete the goods from the industrialize countries raising its abundance in wealth generations

Work Cited
  • Kenneth L. Sokoloff, Stanley L. Engerman. “History Lessons: Institutions, Factor Endowments, and Paths of Development in the New World”. The Journal of Economic Perspectives Vol 14 No.3 (2000): pp. 217-232
  • Piros, Christopher Dixon. Economics for investment decision makers micro, macro, and international economics. Hoboken, N.J.: Wiley, 2013. Print.
  • ACuñat, Alejandro, and Marc J. Melitz. Volatility, labor market flexibility, and the pattern of comparative advantage. Cambridge, Mass.: National Bureau of Economic Research, 2007. Print.
  • Reinert, Erik S.. How rich countries got rich and why poor countries stay poor. New York: Public Affairs, 2008. Print.
  • Salvatore, Dominick. International economics. 7th ed. New York: John Wiley, 2001. Print.
  • Lin, Justin, and Ha-Joon Chang. “Should Industrial Policy in Developing Countries Conform to Comparative Advantage or Defy it? A Debate Between Justin Lin and Ha-Joon Chang.” Development Policy Review 27.5 (2009): 483-502. Print.

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