- Heckscher-Ohlin Model Assume that only two countries exist (A&B) producing cotton (C) and steel (S) using two resources of labor (L) and capital (K). Countries Factor Endowments A B Lab or Force 45 20 Capital Stock 15 10 a. Which country is abundant in which factor? Why? b. Assuming that cotton is labor intensive and relative demand is following the same path in both countries, use the RD-RS analysis to show the impact of trade liberalization on relative prices in each country. Use the terms of trade for coun B in your graphing analysis. Explain. c. Use the Stolper-Samuelson theorem to explain the impact of opening up to trade on the wages and rental rate of capital in both countries