Explanation : Bretton Woods Conference, formally United Nations Monetary and Financial Conference, meeting at Bretton Woods, New Hampshire (July 1-22, 1944), during World War II to make financial arrangements for the postwar world after the expected defeat of Germany and Japan. The conference was attended by experts noncommittally representing 44 states or governments, including the Soviet Union. It drew up a project for the International Bank for Reconstruction and Development (IBRD) to make long-term capital available to states urgently needing such foreign aid, and a project for the International Monetary Fund (IMF) to finance short-term imbalances in international payments in order to stabilize exchange rates. Although the conference recognized that exchange control and discriminatory tariffs would probably be necessary for some time after the war, it prescribed that such measures should be ended as soon as possible. After governmental ratifications the IBRD was constituted late in 1945 and the IMF in 1946, to become operative, respectively, in the two following years.
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Explanation : Factor Proportions Theory Almost after a century and a quarter of the classical version of the theory of international trade, two Swedish economists, Eli Heckscher and Bertil Ohlin, propounded a theory that is known as the factor endowment theory or the factor proportions theory. In fact, it was Eli Heckscher who mooted the notion of a country’s comparative advantage (disadvantage) based on relative abundance (scarcity) of factors of production. Later on, his student, Bertil Ohlin developed this notion of relative factor abundance into a theory of the pattern of international trade. The theory explains that in a two-country, two-factor, and two-commodity framework different countries are endowed with varying proportions of different factors of production. Some countries have large populations and large labour resources. Others have abundance of capital but are short of labour resources. Thus, a country with a large labour force will be able to produce the goods at a lower cost using a labour intensive mode of production. Similarly, countries with a large supply of capital will specialise in goods that involve a capital intensive mode of production. The former will export its labour intensive goods to the latter and import capital intensive goods from the latter. After the trade, both the countries will have two types of goods at the least cost. Factor endowment theory explains that a country should produce and export a commodity that primarily involves a factor of production abundantly available within the country.