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One Size Fits All? Heckscher-Ohlin Specialization in Global Production

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Peter K. Schott

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Abstract

This paper introduces a new technique for testing the Heckscher-Ohlin model that allows for the possibility that countries with sufficiently disparate endowments specialize in unique subsets of goods. Results based upon industry-level data reject one-size-fits-all homogeneity in favor of Heckscher-Ohlin specialization. Results also reveal that industry-level data hide substantial intra-industry heterogeneity, violating the assumptions of the model and complicating the interpretation of results from earlier research. A methodology for adjusting industry output to reflect underlying product variation is introduced. Reestimation of the model using adjusted aggregates in place of standard industry classifications provides strong support for Heckscher-Ohlin specialization.

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File URL: http://hdl.handle.net/10.1257/000282803322157043
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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 93 (2003)
Issue (Month): 3 (June)
Pages: 686-708
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Handle: RePEc:aea:aecrev:v:93:y:2003:i:3:p:686-708

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  1. Maskus, Keith E., 1985. "A test of the Heckscher-Ohlin-Vanek theorem: The Leontief commonplace," Journal of International Economics, Elsevier, vol. 19(3-4), pages 201-212, November. [Downloadable!] (restricted)
  2. Finger, J M, 1975. "Trade Overlap and Intra-Industry Trade," Economic Inquiry, Oxford University Press, vol. 13(4), pages 581-89, December.
  3. Bowen, Harry P & Leamer, Edward E & Sveikauskas, Leo, 1987. "Multicountry, Multifactor Tests of the Factor Abundance Theory," American Economic Review, American Economic Association, vol. 77(5), pages 791-809, December. [Downloadable!] (restricted)
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  4. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output per Worker than Others?," NBER Working Papers 6564, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Robert J. Barro & Jong-Wha Lee, 1993. "International Comparisons of Educational Attainment," NBER Working Papers 4349, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Redding, Stephen, 2002. "Specialization dynamics," Journal of International Economics, Elsevier, vol. 58(2), pages 299-334, December. [Downloadable!] (restricted)
  7. Peter K. Schott, 2001. "Do Countries Specialize?," Yale School of Management Working Papers ysm173, Yale School of Management. [Downloadable!]
  8. Davis, Donald R. & David E. Weinstein & Scott C. Bradford & Kazushige Shimpo, 1997. "Using International and Japanese Regional Data to Determine When the Factor Abundance Theory of Trade Works," American Economic Review, American Economic Association, vol. 87(3), pages 421-46, June. [Downloadable!] (restricted)
  9. Repetto, A. & Ventura, J., 1997. "The Leontief-Trefler Hypothesis and Factor Price Insensitivity," Working papers 97-13, Massachusetts Institute of Technology (MIT), Department of Economics.
  10. Alan V. Deardorff, 1974. "A Geometry of Growth and Trade," Canadian Journal of Economics, Canadian Economics Association, vol. 7(2), pages 295-306, May. [Downloadable!] (restricted)
  11. Debaere, Peter & Demiroglu, Ufuk, 2003. "On the similarity of country endowments," Journal of International Economics, Elsevier, vol. 59(1), pages 101-136, January. [Downloadable!] (restricted)
  12. Peter K. Schott, 2004. "Across-product Versus Within-product Specialization in International Trade," The Quarterly Journal of Economics, MIT Press, vol. 119(2), pages 646-677, May. [Downloadable!] (restricted)
  13. Keith E. Maskus, 1991. "Comparing International Trade Data and Product and National Characteristics Data for the Analysis of Trade Models," NBER Chapters, in: International Economic Transactions: Issues in Measurement and Empirical Research, pages 17-60 National Bureau of Economic Research, Inc. [Downloadable!]
  14. Trefler, Daniel, 1995. "The Case of the Missing Trade and Other Mysteries," American Economic Review, American Economic Association, vol. 85(5), pages 1029-46, December. [Downloadable!] (restricted)
  15. Hanson, Gordon H. & Slaughter, Matthew J., 2002. "Labor-market adjustment in open economies: Evidence from US states," Journal of International Economics, Elsevier, vol. 57(1), pages 3-29, June. [Downloadable!] (restricted)
  16. Bernstein, Jeffrey R. & Weinstein, David E., 2002. "Do endowments predict the location of production?: Evidence from national and international data," Journal of International Economics, Elsevier, vol. 56(1), pages 55-76, January. [Downloadable!] (restricted)
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  17. James Harrigan, 2000. "The impact of the Asia crisis on U.S. industry: an almost-free lunch?," Economic Policy Review, Federal Reserve Bank of New York, issue Sep, pages 71-81. [Downloadable!]
  18. Leamer, Edward E. & Maul, Hugo & Rodriguez, Sergio & Schott, Peter K., 1999. "Does natural resource abundance increase Latin American income inequality?," Journal of Development Economics, Elsevier, vol. 59(1), pages 3-42, June. [Downloadable!] (restricted)
  19. Donald R. Davis & David E. Weinstein, 2001. "An Account of Global Factor Trade," American Economic Review, American Economic Association, vol. 91(5), pages 1423-1453, December. [Downloadable!] (restricted)
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  20. Deardorff, Alan V. & Staiger, Robert W., 1988. "An interpretation of the factor content of trade," Journal of International Economics, Elsevier, vol. 24(1-2), pages 93-107, February. [Downloadable!] (restricted)
  21. James Harrigan & Egon Zakrajsek, 2000. "Factor supplies and specialization in the world economy," Finance and Economics Discussion Series 2000-43, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  22. Richard A. Brecher & Ehsan U. Choudhri, 1993. "Some Empirical Support for the Heckscher-Ohlin Model of Production," Canadian Journal of Economics, Canadian Economics Association, vol. 26(2), pages 272-85, May. [Downloadable!] (restricted)
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  23. James Harrigan, 1996. "Technology, Factor Supplies and International Specialization: Estimating the Neoclassical Model," NBER Working Papers 5722, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  24. Deardorff, Alan V., 1994. "The possibility of factor price equalization, revisited," Journal of International Economics, Elsevier, vol. 36(1-2), pages 167-175, February. [Downloadable!] (restricted)
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  25. Leamer, E.E., 1995. "The Heckscher-Ohlin Model in Theory and Practice," Princeton Studies in International Economics 77, International Economics Section, Departement of Economics Princeton University,.
  26. Bernard, Andrew & Redding, Stephen J & Schott, Peter, 2005. "Factor Price Equality and the Economies of the United States," CEPR Discussion Papers 5111, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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