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Factor Specialization in U.S. and U.K. Trade: Simple Departures from the Factor-content Theory

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  • Keith E. Maskus
  • Allan Webster

Abstract

In this paper we perform a theoretical and data analysis aimed at linking two strands of literature based on the Heckscher-Ohlin-Vanek (HOV) theorem. First, we calculate factor-intensity rankings for U.S. and U.K. global trade, using several natural resources, types of capital, and detailed labor occupations as factors. Taking the HOV theorem as a valid framework for analysis, we compute and compare statistically the factor-content rankings that emerge, relating these rankings to issues of comparative advantage. We go on to investigate whether there is greater specialization across broad factor categories or within factor categories, which has implications for the depiction of trade determinants. Second, we undertake an econometric comparison of the underlying input-output tables in the two economies to investigate the empirical basis for a fundamental HOV assumption. The fact that the U.S. and the U.K. have significant amounts of comparable data on industrial occupational employment allows for econometric specifications of a fairly general nature. We develop a series of estimable equations that allow for neutral productivity differences and measurement error. We use this approach to test HOV against more general alternatives. The results reject HOV in favor of a model with factor-augmenting industry-neutral parameters with measurement biases. On the consumption side it appears that the notion of identical, homothetic preferences is fairly consistent with the data, though available GNP figures misstate the apparent ratio of national expenditure shares.

Suggested Citation

  • Keith E. Maskus & Allan Webster, 1995. "Factor Specialization in U.S. and U.K. Trade: Simple Departures from the Factor-content Theory," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 131(III), pages 419-439, September.
  • Handle: RePEc:ses:arsjes:1995-iii-9
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    References listed on IDEAS

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    1. Trefler, Daniel, 1993. "International Factor Price Differences: Leontief Was Right!," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 961-987, December.
    2. Richard A. Brecher & Ehsan U. Choudhri, 1993. "Some Empirical Support for the Heckscher-Ohlin Model of Production," Canadian Journal of Economics, Canadian Economics Association, vol. 26(2), pages 272-285, May.
    3. Sveikauskas, Leo A, 1983. "Science and Technology in United States Foreign Trade," Economic Journal, Royal Economic Society, vol. 93(371), pages 542-554, September.
    4. Trefler, Daniel, 1995. "The Case of the Missing Trade and Other Mysteries," American Economic Review, American Economic Association, vol. 85(5), pages 1029-1046, December.
    5. Keith Maskus & Catherine Sveikauskas & Allan Webster, 1994. "The composition of the human capital stock and its relation to international trade: Evidence from the US and Britain," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 130(1), pages 50-76, March.
    6. Robert W. Staiger & Alan V. Deardorff & Robert M. Stern, 1987. "An Evaluation of Factor Endowments and Protection as Determinants of Japanese and American Foreign Trade," Canadian Journal of Economics, Canadian Economics Association, vol. 20(3), pages 449-463, August.
    7. Helpman, Elhanan, 1984. "The Factor Content of Foreign Trade," Economic Journal, Royal Economic Society, vol. 94(373), pages 84-94, March.
    8. 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.
    9. Brecher, Richard A. & Choudhri, Ehsan U., 1982. "The factor content of international trade without factor-price equalization," Journal of International Economics, Elsevier, vol. 12(3-4), pages 277-283, May.
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    Cited by:

    1. Glenn Ellison & Edward L. Glaeser & William R. Kerr, 2010. "What Causes Industry Agglomeration? Evidence from Coagglomeration Patterns," American Economic Review, American Economic Association, vol. 100(3), pages 1195-1213, June.
    2. Mario J. Crucini & Chris I. Telmer & Marios Zachariadis, 2005. "Understanding European Real Exchange Rates," American Economic Review, American Economic Association, vol. 95(3), pages 724-738, June.
    3. Mika Saito, 2000. "The Empirical Investigation of The Kemp-Jones Model: The Case of OECD Countries," Econometric Society World Congress 2000 Contributed Papers 1159, Econometric Society.
    4. Mika Saito, 2004. "Trade Patterns Among Industrial Countries; Their Relationship to Technology Differences and Capital Mobility," IMF Working Papers 04/23, International Monetary Fund.

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