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A proportionality assumption and measurement biases in the factor content of trade

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  • Puzzello, Laura

Abstract

This paper revisits Trefler and Zhu's (2005, 2010) (TZ) empirical examination of the factor content of trade in the presence of international differences in production techniques and trade in inputs. In this framework, knowing the bilateral details of each country's input–output structure is key to the correct calculation of the factor content of trade. Because input–output tables typically lack this detail, TZ impute the relevant input–output coefficients by making a proportionality assumption. This paper uses survey-based input–output coefficients from the Asian Input–output (AIO) tables that do provide bilateral details. Exploiting methodological differences in the compilation of the AIO tables and the data underlying TZ studies, this paper empirically assesses how well the TZ approach fits sourcing patterns of inputs and finds that it understates countries' use and relative use of foreign inputs, especially in those sectors where they are most used. As a result countries' use of domestic factors is overstated. Biases generated on exported and imported factor services cancel each other out. The net effect on the measured factor trade is small.

Suggested Citation

  • Puzzello, Laura, 2012. "A proportionality assumption and measurement biases in the factor content of trade," Journal of International Economics, Elsevier, vol. 87(1), pages 105-111.
  • Handle: RePEc:eee:inecon:v:87:y:2012:i:1:p:105-111
    DOI: 10.1016/j.jinteco.2011.11.009
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    References listed on IDEAS

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    1. Keith E. Maskus & Shuichiro Nishioka, 2009. "Development-related biases in factor productivities and the HOV model of trade," Canadian Journal of Economics, Canadian Economics Association, vol. 42(2), pages 519-553, May.
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    5. Feenstra, Robert C & Hanson, Gordon H, 1996. "Globalization, Outsourcing, and Wage Inequality," American Economic Review, American Economic Association, vol. 86(2), pages 240-245, May.
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    9. Deborah Winkler, William Milberg, 2009. "WP 2009-12 Errors from the “Proportionality Assumption” in the Measurement of Offshoring: Application to German Labor Demand," SCEPA working paper series. SCEPA's main areas of research are macroeconomic policy, inequality and poverty, and globalization. 2009-12, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
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    Cited by:

    1. Marcel P. Timmer & Erik Dietzenbacher & Bart Los & Robert Stehrer & Gaaitzen J. Vries, 2015. "An Illustrated User Guide to the World Input–Output Database: the Case of Global Automotive Production," Review of International Economics, Wiley Blackwell, vol. 23(3), pages 575-605, August.
    2. Tang, Heiwai & Wang, Fei & Wang, Zhi, 2014. "The domestic segment of global supply chains in China under state capitalism," Policy Research Working Paper Series 6960, The World Bank.
    3. Russell Hillberry & Thibault Fally, 2015. "A Coasian Model of International Production Chains," 2015 Meeting Papers 282, Society for Economic Dynamics.
    4. Peter H. Egger & Katharina Erhardt, 2016. "EU-Swiss trade integration via input-output linkages:," Aussenwirtschaft, University of St. Gallen, School of Economics and Political Science, Swiss Institute for International Economics and Applied Economics Research, vol. 67(03), pages 1-23, December.
    5. Arne J. Nagengast & Robert Stehrer, 2016. "Accounting for the Differences Between Gross and Value Added Trade Balances," The World Economy, Wiley Blackwell, vol. 39(9), pages 1276-1306, September.
    6. Tomberger, Patrick, 2016. "Labour Income and Employment embodied in Internationally Fragmented Production Chains," Papers 1114, World Trade Institute.
    7. Feenstra, Robert C. & Jensen, J. Bradford, 2012. "Evaluating estimates of materials offshoring from US manufacturing," Economics Letters, Elsevier, vol. 117(1), pages 170-173.
    8. Heiwai Tang & Fei Wang & Zhi Wang, 2016. "Extending the Input-Output Table Based on Firm-level Data," CESifo Working Paper Series 5811, CESifo Group Munich.
    9. Laura Puzzello & Paul Raschky, 2014. "Global supply chains and natural disasters: implications for international trade," Chapters,in: Asia and Global Production Networks, chapter 4, pages 112-147 Edward Elgar Publishing.
    10. Nishioka, Shuichiro & Ripoll, Marla, 2012. "Productivity, trade and the R&D content of intermediate inputs," European Economic Review, Elsevier, vol. 56(8), pages 1573-1592.
    11. Robert C. Johnson, 2017. "Measuring Global Value Chains," NBER Working Papers 24027, National Bureau of Economic Research, Inc.
    12. Johnson, Robert C. & Noguera, Guillermo, 2012. "Accounting for intermediates: Production sharing and trade in value added," Journal of International Economics, Elsevier, vol. 86(2), pages 224-236.

    More about this item

    Keywords

    Factor content of trade; Proportionality assumption; International differences in production techniques;

    JEL classification:

    • F1 - International Economics - - Trade
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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