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Testing the HeckscherOhlinVanek theory with a natural experiment

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  • Assaf Zimring

Abstract

I use the historical episode of near-elimination of commuting from the West Bank into Israel to test three key predictions of the HeckscherOhlinVanek model of trade and find strong support for them. On the production side, I use variation between districts and find that wage changes were not correlated with the size of the shock to the labour force (factor price insensitivity) and that districts that received larger influx of returning commuters shifted production more towards labour-intensive industries (Rybczynski effect). On the consumption side, data are consistent with identical homothetic preferences, which, combined with the production results, supports the HeckscherOhlinVanek theorem on the factor content of trade.

Suggested Citation

  • Assaf Zimring, 2019. "Testing the HeckscherOhlinVanek theory with a natural experiment," Canadian Journal of Economics, Canadian Economics Association, vol. 52(1), pages 58-92, February.
  • Handle: RePEc:cje:issued:v:52:y:2019:i:1:p:58-92
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    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade

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