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Do Endowments Predict the Location of Production? Evidence from National and International Data

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Author Info
Jeffrey R. Bernstein
David E. Weinstein

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Abstract

Examining the relationship between factor endowments and production patterns using international and Japanese regional data, we provide the first empirical confirmation of Ethier's correlation approach to the Rybczynski theorem. Moreover, we find evidence of substantial production indeterminacy. Prediction errors are six to thirty times larger for goods traded relatively freely. A compelling explanation of this phenomenon is the existence of more goods than factors in the presence of trade costs. This result implies that regressions of trade or output on endowments have weak theoretical foundations. Furthermore, since errors are largest in data sets where trade costs are small, we explain why the common methodology of imputing trade barriers from regression residuals often leads to backwards results.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6815.

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Date of creation: Nov 1998
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Handle: RePEc:nbr:nberwo:6815

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Find related papers by JEL classification:
F11 - International Economics - - Trade - - - Neoclassical Models of Trade
R13 - Urban, Rural, and Regional Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies

References listed on IDEAS
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  14. Ethier, Wilfred J., 1984. "Higher dimensional issues in trade theory," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 3, pages 131-184 Elsevier. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, 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.)

  1. Catia Batista & Jacques Potin, 2007. "Heckscher-Ohlin Specialization and the Marginal Product of Capital, 1976-2000," Economics Series Working Papers 357, University of Oxford, Department of Economics. [Downloadable!]
  2. Donald R. Davis & David E. Weinstein, 1997. "Economic Geography and Reginal Production Structure: An Empirical Investigation," NBER Working Papers 6093, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Gordon H. Hanson & Matthew J. Slaughter, 1999. "The Rybczynski Theorem, Factor-Price Equalization, and Immigration: Evidence from U.S. States," NBER Working Papers 7074, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Robert C. Feenstra & Chang Hong, 2007. "China's Exports and Employment," NBER Working Papers 13552, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Bernard, Andrew & Redding, Stephen J & Schott, Peter & Simpson, Helen, 2002. "Factor Price Equalization in the UK?," CEPR Discussion Papers 3523, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  6. 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!]
  7. 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:
  8. Donald R. Davis & David E. Weinstein, 1998. "An Account of Global Factor Trade," NBER Working Papers 6785, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  9. 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!]
    Other versions:
  10. Aroca, Patricio & Bosch, Mariano & Maloney, William F., 2005. "Spatial dimensions of trade liberalization and economic convergence : Mexico 1985-2002," Policy Research Working Paper Series 3744, The World Bank. [Downloadable!]
    Other versions:
  11. Randall Morck & Bernard Yeung & Wayne Yu, 1999. "The Information Content of Stock Markets: Why Do Emerging Markets Have Synchronous Stock Price Movements?," Harvard Institute of Economic Research Working Papers 1879, Harvard - Institute of Economic Research. [Downloadable!]
    Other versions:
  12. Neil Gandal & Gordon H. Hanson & Matthew J. Slaughter, 2000. "Technology, Trade, and Adjustment to Immigration in Israel," NBER Working Papers 7962, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  13. Batista, Catia & Potin, Jacques, 2008. "International Specialization and the Return to Capital, 1976-2000," ESSEC Working Papers DR 08001, ESSEC Research Center, ESSEC Business School. [Downloadable!]
  14. 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:
  15. Donald R. Davis & David E. Weinstein, 2002. "Market size, linkages, and productivity: A study of Japanese regions," Discussion Papers 0102-04, Columbia University, Department of Economics. [Downloadable!]
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  16. Stephen Redding & Mercedes Vera-Martin, 2006. "Factor Endowments and Production in European Regions," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 142(1), pages 1-32, April. [Downloadable!] (restricted)
    Other versions:
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