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Judging Factor Abundance

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  • Harry P. Bowen
  • Leo Sveikauskas

Abstract

Recent theoretical developments have cast doubt on the reliability of the commonly used cross-industry regression as a method for inferring a country's abundant factors. This paper examines the empirical importance of these theoretical cautions by comparing regression derived estimates of factor abundance with both revealed and actual factor abundances for thirty-five countries and up to twelve resources. Trade imbalances are found to importantly affect the regression estimates and we therefore derive and implement a theoretically consistent trade balance correction. The results indicate that despite theoretical concerns, the regression measures are often reliable indicators of revealed factor abundances. The results therefore enhance the credibility of the findings of the numerous regression studies that have been conducted over the past thirty years.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3059.

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Date of creation: Aug 1989
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Publication status: published as Quarterly Journal of Economics, Vol. 107, no. 2 (1992): 599-620.
Handle: RePEc:nbr:nberwo:3059

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  1. Lawrence F. Katz & Lawrence H. Summers, 1989. "Can Interindustry Wage Differentials Justify Strategic Trade Policy?," NBER Chapters, in: Trade Policies for International Competitiveness, pages 85-124 National Bureau of Economic Research, Inc.
  2. Leamer, Edward E, 1987. "Paths of Development in the Three-Factor, n-Good General Equilibrium Model," Journal of Political Economy, University of Chicago Press, vol. 95(5), pages 961-99, October.
  3. Branson, William H. & Monoyios, Nikolaos, 1977. "Factor inputs in U.S. trade," Journal of International Economics, Elsevier, vol. 7(2), pages 111-131, May.
  4. Baldwin, Robert E, 1971. "Determinants of the Commodity Structure of U.S. Trade," American Economic Review, American Economic Association, vol. 61(1), pages 126-46, March.
  5. Leamer, Edward E & Bowen, Harry P, 1981. "Cross-Section Tests of the Heckscher-Ohlin Theorem: Comment [Factor Abundance and Comparative Advantage]," American Economic Review, American Economic Association, vol. 71(5), pages 1040-43, December.
  6. Crafts, N F R & Thomas, Mark, 1986. "Comparative Advantage in UK Manufacturing Trade, 1910-1935," Economic Journal, Royal Economic Society, vol. 96(383), pages 629-45, September.
  7. Harry P. Bowen & Edward E. Leamer & Leo Sveikauskas, 1986. "Multicountry, Multifactor Tests of the Factor Abundance Theory," NBER Working Papers 1918, National Bureau of Economic Research, Inc.
  8. Balassa, Bela, 1979. "The Changing Pattern of Comparative Advantage in Manufactured Goods," The Review of Economics and Statistics, MIT Press, vol. 61(2), pages 259-66, May.
  9. Krueger, Alan B & Summers, Lawrence H, 1988. "Efficiency Wages and the Inter-industry Wage Structure," Econometrica, Econometric Society, vol. 56(2), pages 259-93, March.
  10. Baldwin, Robert E & Hilton, R Spence, 1984. "A Technique for Indicating Comparative Costs and Predicting Changes in Trade Ratios," The Review of Economics and Statistics, MIT Press, vol. 66(1), pages 105-10, February.
  11. Harkness, Jon P, 1983. "The Factor-Proportions Model with Many Nations, Goods and Factors: Theory and Evidence," The Review of Economics and Statistics, MIT Press, vol. 65(2), pages 298-305, May.
  12. Harkness, Jon P, 1978. "Factor Abundance and Comparative Advantage," American Economic Review, American Economic Association, vol. 68(5), pages 784-800, December.
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Cited by:
  1. Muriel, Beatriz & Terra, Maria Cristina T., 2007. "Sources of Comparative Advantages in Brazil," Economics Working Papers (Ensaios Economicos da EPGE) 658, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  2. Svaleryd, Helena & Vlachos, Jonas, 2002. "Financial Markets, Industrial Specialization and Comparative Advantage - Evidence from OECD Countries," Research Papers in Economics 2002:6, Stockholm University, Department of Economics.
  3. Robert E. Baldwin & Fukunari Kimura, 1998. "Measuring U.S. International Goods and Services Transactions," NBER Chapters, in: Geography and Ownership as Bases for Economic Accounting, pages 9-48 National Bureau of Economic Research, Inc.
  4. Vlachos, Jonas & Svaleryd, Helena, 2001. "Financial Markets, the Pattern of Specialization and Comparative Advantage. Evidence from OECD countries," Working Paper Series in Economics and Finance 449, Stockholm School of Economics, revised 03 Sep 2001.
  5. Ekholm, Karolina, 1995. "Revealed Factor Abundance and the Factor Content of Trade in Headquarter Services," Working Paper Series 440, Research Institute of Industrial Economics.
  6. William K. Hutchinson, 2002. "Explaining United States International Trade, 1870-1910," Vanderbilt University Department of Economics Working Papers 0205, Vanderbilt University Department of Economics.
  7. Cörvers,F. & Reininga,T., 1998. "The Dutch Factor Content of Human and Physical Capital: A Test of the HOV Model," ROA Research Memorandum 001, Maastricht University, Research Centre for Education and the Labour Market (ROA).
  8. Corvers, Frank & de Grip, Andries, 1997. "Explaining trade in industrialized countries by country-specific human capital endowments," Economic Modelling, Elsevier, vol. 14(3), pages 395-416, July.
  9. Maryam Asghari, 2011. "Tourism and Natural Resources," Iranian Economic Review, Economics faculty of Tehran university, vol. 16(3), pages 103-117, fall.
  10. Svaleryd, Helena & Vlachos, Jonas, 2005. "Financial markets, the pattern of industrial specialization and comparative advantage: Evidence from OECD countries," European Economic Review, Elsevier, vol. 49(1), pages 113-144, January.
  11. Vadym Konchyn, 2004. "Komparative Wettbewerbsposition der Ukraine in den Produktions- und Handelsbeziehungen im Weltwirtschaftssystem und mit dem sich erweiternden Europa," Kiel Working Papers 1219, Kiel Institute for the World Economy.
  12. Shujiro Urata & Kozo Kiyota, 2003. "Services Trade in East Asia," NBER Chapters, in: Trade in Services in the Asia Pacific Region, NBER East Asia Seminar on Economics (EASE), Volume 11, pages 379-428 National Bureau of Economic Research, Inc.
  13. Arvind Subramanian & Trevor Serge Coleridge Alleyne, 2001. "What Does South Africa's Pattern of Trade Say About its Labor Markets?," IMF Working Papers 01/148, International Monetary Fund.

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