Uday Rajan (Department of Economics, Stanford University)
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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Publisher Info
Paper provided by EconWPA in its series International Trade with number
9502001.
Length: 28 pages Date of creation: 13 Feb 1995 Date of revision: Handle: RePEc:wpa:wuwpit:9502001
Note: 28 pages, LaTeX file Contact details of provider: Web page: http://129.3.20.41
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Find related papers by JEL classification: F1 - International Economics - - Trade F2 - International Economics - - International Factor Movements and International Business
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