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Factor Proportions and the Growth of World Trade

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  • Zymek, Robert

Abstract

Most of the expansion of global trade during the last three decades has been of the North-South kind - between capital-abundant developed and labour-abundant developing countries. Based on this observation, I argue that the recent growth of world trade is best understood from a factor-proportions perspective. I present novel evidence documenting that differences in capital-labour ratios across countries have increased in the wake of two shocks to the global economy: i) the opening up of China and ii) financial globalisation and the resulting upstream capital flows towards capital-abundant regions. I analyse their impact on specialisation and the volume of trade in a dynamic model which combines factor-proportions trade in goods with international trade in financial assets. Calibrating this model, I find that it can account for 60% of world trade growth between 1980 and 2007. It is also capable of predicting international investment patterns which are consistent with the data

Suggested Citation

  • Zymek, Robert, 2013. "Factor Proportions and the Growth of World Trade," SIRE Discussion Papers 2013-77, Scottish Institute for Research in Economics (SIRE).
  • Handle: RePEc:edn:sirdps:498
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    Cited by:

    1. George Sorg-Langhans & Clemens Struck & Adnan Velic, 2017. "On the Factor Content of Trade," Trinity Economics Papers tep0817, Trinity College Dublin, Department of Economics, revised Jan 2018.
    2. Clemens Struck & Adnan Velic, 2016. "Competing Gains From Trade," Trinity Economics Papers tep1116, Trinity College Dublin, Department of Economics, revised Apr 2018.
    3. Clemens C Struck & Clemens C. Struck, 2017. "On the Interaction of Growth, Trade and International Macroeconomics," Working Papers 201724, School of Economics, University College Dublin.
    4. Mariko Klasing & Petros Milionis & Robert Zymek, 2015. "Gravity across Space and Time," ESE Discussion Papers 265, Edinburgh School of Economics, University of Edinburgh.

    More about this item

    Keywords

    Heckscher-Ohlin; international trade; China; financial globalisation;

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation

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