The Heckscher-Ohlin-Vanek model of factor service trade is a central construct in international economics. Empirically, though, it is a flop. This warrants a new approach. Using Japanese regional data we are able to test the HOV model by independently examining its component production and consumption elements. The strict HOV model performs poorly because it cannot explain the international location of production. However, relaxing the assumption of universal factor price equalization yields a dramatic improvement. We also solve most of what Trefler (1995) calls the mystery of the missing trade. In sum, the HOV model performs remarkably well.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
5625.
Length: Date of creation: Jun 1996 Date of revision: Handle: RePEc:nbr:nberwo:5625
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Find related papers by JEL classification: F1 - International Economics - - Trade D5 - Microeconomics - - General Equilibrium and Disequilibrium
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Leamer, Edward E. & Levinsohn, James, 1995.
"International trade theory: The evidence,"
Handbook of International Economics,
in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 26, pages 1339-1394
Elsevier.
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