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A proportionality assumption and measurement biases in the factor content of trade

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  • Puzzello, Laura

Abstract

This paper revisits Trefler and Zhu's (2005, 2010) (TZ) empirical examination of the factor content of trade in the presence of international differences in production techniques and trade in inputs. In this framework, knowing the bilateral details of each country's input–output structure is key to the correct calculation of the factor content of trade. Because input–output tables typically lack this detail, TZ impute the relevant input–output coefficients by making a proportionality assumption. This paper uses survey-based input–output coefficients from the Asian Input–output (AIO) tables that do provide bilateral details. Exploiting methodological differences in the compilation of the AIO tables and the data underlying TZ studies, this paper empirically assesses how well the TZ approach fits sourcing patterns of inputs and finds that it understates countries' use and relative use of foreign inputs, especially in those sectors where they are most used. As a result countries' use of domestic factors is overstated. Biases generated on exported and imported factor services cancel each other out. The net effect on the measured factor trade is small.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 87 (2012)
Issue (Month): 1 ()
Pages: 105-111

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Handle: RePEc:eee:inecon:v:87:y:2012:i:1:p:105-111

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Web page: http://www.elsevier.com/locate/inca/505552

Related research

Keywords: Factor content of trade; Proportionality assumption; International differences in production techniques;

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References

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  1. Robert C. Feenstra & Gordon H. Hanson, 1996. "Globalization, Outsourcing, and Wage Inequality," NBER Working Papers 5424, National Bureau of Economic Research, Inc.
  2. Davis, D.R. & Weinstein, D.E., 1999. "An Account of Global Factor Trade," Working Papers 435, Research Seminar in International Economics, University of Michigan.
  3. David Hummels & Jun Ishii & Kei-Mu Yi, 1999. "The nature and growth of vertical specialization in world trade," Staff Reports 72, Federal Reserve Bank of New York.
  4. Trefler, Daniel & Zhu, Susan Chun, 2010. "The structure of factor content predictions," Journal of International Economics, Elsevier, vol. 82(2), pages 195-207, November.
  5. Reimer, Jeffrey J., 2006. "Global production sharing and trade in the services of factors," Journal of International Economics, Elsevier, vol. 68(2), pages 384-408, March.
  6. 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.
  7. Werner Antweiler & Daniel Trefler, 2000. "Increasing Returns and All That: A View From Trade," NBER Working Papers 7941, National Bureau of Economic Research, Inc.
  8. Keith E. Maskus & Shuichiro Nishioka, 2008. "Development-Related Biases in Factor Productivities and the HOV Model of Trade," CESifo Working Paper Series 2253, CESifo Group Munich.
  9. Robert C. Feenstra & Gordon H. Hanson, 1999. "The Impact Of Outsourcing And High-Technology Capital On Wages: Estimates For The United States, 1979-1990," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 907-940, August.
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Cited by:
  1. Tang, Heiwai & Wang, Fei & Wang, Zhi, 2014. "The domestic segment of global supply chains in China under state capitalism," Policy Research Working Paper Series 6960, The World Bank.
  2. Robert C. Feenstra & J. Bradford Jensen, 2012. "Evaluating Estimates of Materials Offshoring from U.S. Manufacturing," NBER Working Papers 17916, National Bureau of Economic Research, Inc.

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