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Refutable Implications of the Heckscher-Ohlin Model

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  • Uday Rajan

    (Department of Economics, Stanford University)

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    Abstract

    Previous empirical tests have found that, contrary to the conclusions of the Heckscher-Ohlin model, the factor composition of traded goods fails to reveal relative factor abundance rankings. Using a nonparametric approach, this paper discusses the refutability of two of the assumptions of the HO model: that countries have identical homothetic preferences and identical constant returns to scale production functions. We find that, for two countries, the assumption on preferences cannot be refuted with expenditure data alone. However, the assumption on technologies is refutable even when some factor prices (such as the rental rate on capital) are unobserved. Finally, we consider the refutability of Deardorff's (1982) more general HO model, the main result of which is that the value of net factor exports at (intrinsically unobservable) autarky factor prices is negative. We show that, in the $2 \times 2$ case, this model can be refuted using just observed data, i.e. data from the observed situation under trade.

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    Bibliographic Info

    Paper provided by EconWPA in its series International Trade with number 9502001.

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    Length: 28 pages
    Date of creation: 13 Feb 1995
    Date of revision:
    Handle: RePEc:wpa:wuwpit:9502001

    Note: 28 pages, LaTeX file
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    Web page: http://128.118.178.162

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    1. Bowen, Harry P & Leamer, Edward E & Sveikauskas, Leo, 1987. "Multicountry, Multifactor Tests of the Factor Abundance Theory," American Economic Review, American Economic Association, vol. 77(5), pages 791-809, December.
    2. Trefler, Daniel, 1993. "International Factor Price Differences: Leontief Was Right!," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 961-87, December.
    3. Helpman, Elhanan, 1984. "The Factor Content of Foreign Trade," Economic Journal, Royal Economic Society, vol. 94(373), pages 84-94, March.
    4. Deardorff, Alan V, 1982. "The General Validity of the Heckscher-Ohlin Theorem," American Economic Review, American Economic Association, vol. 72(4), pages 683-94, September.
    5. Varian, Hal R, 1983. "Non-Parametric Tests of Consumer Behaviour," Review of Economic Studies, Wiley Blackwell, vol. 50(1), pages 99-110, January.
    6. Richard Brecher & Eshan Choudhri, 1992. "Some Empirical Support for the Heckscher-Ohlin Model of Production," Carleton Economic Papers 92-08, Carleton University, Department of Economics.
    7. James R. Markusen, 2014. "Per-Capital Income as a Determinant of International Trade and Environment Policies," CESifo Working Paper Series 4618, CESifo Group Munich.
    8. Varian, Hal R, 1984. "The Nonparametric Approach to Production Analysis," Econometrica, Econometric Society, vol. 52(3), pages 579-97, May.
    9. Maskus, Keith E., 1985. "A test of the Heckscher-Ohlin-Vanek theorem: The Leontief commonplace," Journal of International Economics, Elsevier, vol. 19(3-4), pages 201-212, November.
    10. Staiger, Robert W., 1988. "A specification test of the Heckscher-Ohlin theory," Journal of International Economics, Elsevier, vol. 25(1-2), pages 129-141, August.
    11. Donald J. Brown & Rosa L. Matzkin, 1993. "Walrasian Comparative Statics," Discussion Paper Serie A 424, University of Bonn, Germany.
    12. Varian, Hal R, 1982. "The Nonparametric Approach to Demand Analysis," Econometrica, Econometric Society, vol. 50(4), pages 945-73, July.
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