Nonhomothetic Tastes and Missing Trade of Factor Services
AbstractThe recent literature on the Heckscher-Ohlin-Vanek (HOV) model has concentrated on the production side, particularly the unrealistic assumptions of identical techniques and factor price equalization. However, less is known about the demand side. In this paper, we study the assumption of identical and homothetic preferences as a cause of the empirical failures in the HOV prediction. While the relaxation in identical production techniques is still crucial to predict the direction of factor trade, nonhomothetic tastes are shown to play an important role in explaining why factor trade is “missing” in the sense of Trefler (1995) relative to the HOV prediction.
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Bibliographic InfoPaper provided by Department of Economics, West Virginia University in its series Working Papers with number 09-03.
Length: 24 pages
Date of creation: 2009
Date of revision:
Heckscher-Ohlin; Technology; North-South Bias in Development; Factor Abundance; Nonhomothetic Tastes; Per Capita Income;
Find related papers by JEL classification:
- F11 - International Economics - - Trade - - - Neoclassical Models of Trade
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-12-19 (All new papers)
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- James R. Markusen, 2010.
"Putting Per-Capita Income Back into Trade Theory,"
NBER Working Papers
15903, National Bureau of Economic Research, Inc.
- Thibault FALLY, 2012. "Skill premium and trade puzzles: A solution linking production factors and demand," 2012 Meeting Papers 1189, Society for Economic Dynamics.
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