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Relativity in Trade Theory: Towards a Solution to the Mystery of Missing Trade

  • Eric O'N. Fisher
  • Sharon L. May

Using OECD input output matrices consistently, we offer a tentative solution to the mystery of missing trade. First, we confirm the usual rejection of factor price equalization and identical technologies. Second, we develop a new technique to compute the factor content of trade when countries’ technologies are different. Measuring factor content conventionally, we find a putative paucity of trade in these data. When factor content is measured correctly, theory predicts the direction and volume of trade more accurately. Thus measuring the factor content of trade according to the country of origin may vindicate the Heckscher-Ohlin-Vanek paradigm.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2006/wp-cesifo-2006-10/cesifo1_wp1818.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1818.

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Date of creation: 2006
Date of revision:
Handle: RePEc:ces:ceswps:_1818
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  1. Alan B. Krueger, 1999. "Measuring Labor's Share," American Economic Review, American Economic Association, vol. 89(2), pages 45-51, May.
  2. Antoni Estevadeordal & Alan M. Taylor, 2001. "A Century of Missing Trade?," NBER Working Papers 8301, National Bureau of Economic Research, Inc.
  3. Debeare, Peter, 2003. "Relative Factor Abundance and Trade," Journal of Political Economy, University of Chicago Press, vol. 111(3), pages 589-610, June.
  4. Donald R. Davis & David E. Weinstein, 1998. "An Account of Global Factor Trade," NBER Working Papers 6785, National Bureau of Economic Research, Inc.
  5. Daniele Checchi & Cecilia Garcia-Peñalosa, 2005. "Labour Market Institutions and the Personal Distribution of Income in the OECD," CESifo Working Paper Series 1608, CESifo Group Munich.
  6. Robert C. Feenstra, 1998. "Integration of Trade and Disintegration of Production in the Global Economy," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 31-50, Fall.
  7. Harkness, Jon P, 1978. "Factor Abundance and Comparative Advantage," American Economic Review, American Economic Association, vol. 68(5), pages 784-800, December.
  8. 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.
  9. Douglas Gollin, 2001. "Getting Income Shares Right," Department of Economics Working Papers 2001-11, Department of Economics, Williams College.
  10. Patrick J. Conway, 2002. "The Case of the Missing Trade and Other Mysteries: Comment," American Economic Review, American Economic Association, vol. 92(1), pages 394-404, March.
  11. Kemp, Murray C. & Wan, Henry Jr., 1976. "An elementary proposition concerning the formation of customs unions," Journal of International Economics, Elsevier, vol. 6(1), pages 95-97, February.
  12. Gordon H. Hanson & Robert C. Feenstra, 2000. "Aggregation Bias in the Factor Content of Trade: Evidence from U.S. Manufacturing," American Economic Review, American Economic Association, vol. 90(2), pages 155-160, May.
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