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Factor supplies and specialization in the world economy

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Author Info
James Harrigan
Egon Zakrajsek

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Abstract

A core prediction of the Heckscher-Ohlin theory is that countries specialize in goods in which they have a comparative advantage, and that the source of comparative advantage is differences in relative factor supplies. To examine this theory, we use the most extensive dataset available and document the pattern of industrial specialization and factor endowment differences in a broad sample of rich and developing countries over a lengthy period (1970-92). Next, we develop an empirical model of specialization based on factor endowments, allowing for unmeasurable technological differences and estimate it using panel data techniques. In addition to estimating the effects of factor endowments, we also consider an alternative hypothesis that the level of aggregate productivity by itself can explain specialization. Our results clearly show the importance of factor endowments on specialization: relative endowments do matter.

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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2000-43.

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Date of creation: 2000
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Handle: RePEc:fip:fedgfe:2000-43

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Related research
Keywords: International trade ; International economic relations;

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  1. Baltagi, Badi H. & Li, Qi, 1991. "A transformation that will circumvent the problem of autocorrelation in an error-component model," Journal of Econometrics, Elsevier, vol. 48(3), pages 385-393, June. [Downloadable!] (restricted)
  2. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May. [Downloadable!] (restricted)
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  1. Andrew B. Bernard & J. Bradford Jensen, 2001. "Who Dies? International Trade, Market Structure, and Industrial Restructuring," NBER Working Papers 8327, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Trevor A. Reeve, 2002. "Factor endowments and industrial structure," International Finance Discussion Papers 731, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  3. James Harrigan, 2001. "Specialization and the volume of trade: do the data obey the laws?," Staff Reports 140, Federal Reserve Bank of New York. [Downloadable!]
    Other versions:
  4. Sebnem Kalemli-Ozcan & Bent E. Sørensen & Oved Yosha, 2003. "Risk Sharing and Industrial Specialization: Regional and International Evidence," American Economic Review, American Economic Association, vol. 93(3), pages 903-918, June. [Downloadable!]
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  5. Peter M. Morrow, 2008. "East is East and West is West: A Ricardian-Heckscher-Ohlin Model of Comparative Advantage," Working Papers 575, Research Seminar in International Economics, University of Michigan. [Downloadable!]
  6. Peter K. Schott, 2003. "One Size Fits All? Heckscher-Ohlin Specialization in Global Production," American Economic Review, American Economic Association, vol. 93(3), pages 686-708, June. [Downloadable!]
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  7. Nickell, Stephen & Redding, Stephen J & Swaffield, Joanna K, 2001. "Educational Attainment, Labour Market Institutions and the Structure of Production," CEPR Discussion Papers 3068, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  8. Doireann Fitzgerald & Juan Carlos Hallak, 2004. "Specialization, Factor Accumulation and Development," NBER Working Papers 10638, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  9. Greco, . "Comercio Exterior y Actividad Económica de Colombia en el Siglo XX: Exportaciones Totales y Tradicionales," Borradores de Economia 163, Banco de la Republica de Colombia. [Downloadable!]
    Other versions:
  10. Cusolito , Ana P. & Lederman, Daniel, 2009. "Technology adoption and factor proportions in open economies : theory and evidence from the global computer industry," Policy Research Working Paper Series 5043, The World Bank. [Downloadable!]
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