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Nonhomothetic Tastes and Missing Trade of Factor Services

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Author Info

  • James Cassing

    (Department of Economics, University of Pittsburgh)

  • Shuichiro Nishioka

    (Department of Economics, West Virginia University)

Abstract

The 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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File URL: http://www.be.wvu.edu/phd_economics/pdf/09-03.pdf
File Function: First version, August 2009
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Bibliographic Info

Paper provided by Department of Economics, West Virginia University in its series Working Papers with number 09-03.

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Length: 24 pages
Date of creation: 2009
Date of revision:
Handle: RePEc:wvu:wpaper:09-03

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Related research

Keywords: Heckscher-Ohlin; Technology; North-South Bias in Development; Factor Abundance; Nonhomothetic Tastes; Per Capita Income;

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References

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  1. Yong-Seok Choi & Pravin Krishna, 2004. "The Factor Content of Bilateral Trade: An Empirical Test," Journal of Political Economy, University of Chicago Press, vol. 112(4), pages 887-914, August.
  2. 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.
  3. Markusen, James R, 1986. "Explaining the Volume of Trade: An Eclectic Approach," American Economic Review, American Economic Association, vol. 76(5), pages 1002-11, December.
  4. Hakura, Dalia S., 2001. "Why does HOV fail?: The role of technological differences within the EC," Journal of International Economics, Elsevier, vol. 54(2), pages 361-382, August.
  5. Hunter, Linda, 1991. "The contribution of nonhomothetic preferences to trade," Journal of International Economics, Elsevier, vol. 30(3-4), pages 345-358, May.
  6. Hallak, Juan Carlos, 2006. "Product quality and the direction of trade," Journal of International Economics, Elsevier, vol. 68(1), pages 238-265, January.
  7. Leamer, Edward E, 1980. "The Leontief Paradox, Reconsidered," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 495-503, June.
  8. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
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Cited by:
  1. Justin Caron & Thibault Fally & James R. Markusen, 2012. "Skill Premium and Trade Puzzles: a Solution Linking Production and Preferences," NBER Working Papers 18131, National Bureau of Economic Research, Inc.
  2. James R. Markusen, 2010. "Putting Per-Capita Income Back into Trade Theory," NBER Working Papers 15903, National Bureau of Economic Research, Inc.
  3. 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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