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Relativity in Trade Theory: Towards a Solution to the Mystery of Missing Trade

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  • Eric O'N. Fisher
  • Sharon L. May

Abstract

Using OECD input output matrices consistently, we offer a tentative solution to the mystery of missing trade. First, we confirm the usual rejection of factor price equalization and identical technologies. Second, we develop a new technique to compute the factor content of trade when countries’ technologies are different. Measuring factor content conventionally, we find a putative paucity of trade in these data. When factor content is measured correctly, theory predicts the direction and volume of trade more accurately. Thus measuring the factor content of trade according to the country of origin may vindicate the Heckscher-Ohlin-Vanek paradigm.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2006/wp-cesifo-2006-10/cesifo1_wp1818.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1818.

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Date of creation: 2006
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Handle: RePEc:ces:ceswps:_1818

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  1. Antoni Estevadeordal & Alan M. Taylor, 2001. "A Century of Missing Trade?," NBER Working Papers 8301, National Bureau of Economic Research, Inc.
  2. Douglas Gollin, 2001. "Getting Income Shares Right," Department of Economics Working Papers 2001-11, Department of Economics, Williams College.
  3. 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.
  4. Daniele Checchi & Cecilia García Peñalosa, 2005. "Labour Market Institutions and the Personal Distribution of Income in the OECD," UNIMI - Research Papers in Economics, Business, and Statistics unimi-1009, Universitá degli Studi di Milano.
  5. Gordon H. Hanson & Robert C. Feenstra, 2000. "Aggregation Bias in the Factor Content of Trade: Evidence from U.S. Manufacturing," American Economic Review, American Economic Association, vol. 90(2), pages 155-160, May.
  6. Robert Feenstra, 2003. "Integration Of Trade And Disintegration Of Production In The Global Economy," Working Papers 986, University of California, Davis, Department of Economics.
  7. Alan Krueger, 1999. "Measuring Labor's Share," NBER Working Papers 7006, National Bureau of Economic Research, Inc.
  8. Patrick J. Conway, 2002. "The Case of the Missing Trade and Other Mysteries: Comment," American Economic Review, American Economic Association, vol. 92(1), pages 394-404, March.
  9. Debeare, Peter, 2003. "Relative Factor Abundance and Trade," Journal of Political Economy, University of Chicago Press, vol. 111(3), pages 589-610, June.
  10. Hakura, Dalia S., 2001. "Why does HOV fail?: The role of technological differences within the EC," Journal of International Economics, Elsevier, vol. 54(2), pages 361-382, August.
  11. Harkness, Jon P, 1978. "Factor Abundance and Comparative Advantage," American Economic Review, American Economic Association, vol. 68(5), pages 784-800, December.
  12. repec:fth:prinin:413 is not listed on IDEAS
  13. Kemp, Murray C. & Wan, Henry Jr., 1976. "An elementary proposition concerning the formation of customs unions," Journal of International Economics, Elsevier, vol. 6(1), pages 95-97, February.
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