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Factor supplies and specialization in the world economy

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  • James Harrigan
  • Egon Zakrajsek

Abstract

A core prediction of the Heckscher-Ohlin theory is that countries specialize in goods in which they have a comparative advantage, and that the source of comparative advantage is differences in relative factor supplies. To examine this theory, we use the most extensive data set available and document the pattern of industrial specialization and factor endowment differences in a broad sample of rich and developing countries over a lengthy period (1970-92). Next, we develop an empirical model of specialization based on factor endowments, allowing for unmeasurable technological differences, and estimate it using panel data techniques. In addition to estimating the effects of factor endowments, we consider the alternative hypothesis that the level of aggregate productivity by itself can explain specialization. Our results clearly show the importance of factor endowments on specialization: relative endowments do matter.

Suggested Citation

  • James Harrigan & Egon Zakrajsek, 2000. "Factor supplies and specialization in the world economy," Staff Reports 107, Federal Reserve Bank of New York.
  • Handle: RePEc:fip:fednsr:107
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    References listed on IDEAS

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    1. Baltagi, Badi H. & Li, Qi, 1991. "A transformation that will circumvent the problem of autocorrelation in an error-component model," Journal of Econometrics, Elsevier, vol. 48(3), pages 385-393, June.
    2. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
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    Cited by:

    1. Miguel Urrutia & Carlos Esteban Posada & Adriana Pontón & Oscar Martínez, 2000. "Comercio Exterior y Actividad Económica de Colombia en el Siglo XX: Exportaciones Totales y Tradicionales," Borradores de Economia 163, Banco de la Republica de Colombia.
    2. Redding, Stephen, 2002. "Specialization dynamics," Journal of International Economics, Elsevier, vol. 58(2), pages 299-334, December.
    3. Nickell, Stephen & Redding, Stephen J. & Swaffield, Joanna K, 2001. "Educational Attainment, Labour Market Institutions and the Structure of Production," CEPR Discussion Papers 3068, C.E.P.R. Discussion Papers.
    4. Trevor A. Reeve, 2002. "Factor endowments and industrial structure," International Finance Discussion Papers 731, Board of Governors of the Federal Reserve System (U.S.).
    5. Fitzgerald, Doireann & Hallak, Juan Carlos, 2004. "Specialization, factor accumulation and development," Journal of International Economics, Elsevier, vol. 64(2), pages 277-302, December.
    6. Kwok Tong Soo, 2008. "From Licence Raj to Market Forces: The Determinants of Industrial Structure in India after Reform," Economica, London School of Economics and Political Science, vol. 75(298), pages 222-243, May.
    7. Sebnem Kalemli-Ozcan & Bent E. Sørensen & Oved Yosha, 2003. "Risk Sharing and Industrial Specialization: Regional and International Evidence," American Economic Review, American Economic Association, vol. 93(3), pages 903-918, June.
    8. Sonia Naccache, 2008. "The Political Economy of Trade Policy in Tunisia," Working Papers 438, Economic Research Forum, revised 09 Jan 2008.
    9. Dessy, Sylvain & Mbiekop, Flaubert & Pallage, Stéphane, 2010. "On the mechanics of trade-induced structural transformation," Journal of Macroeconomics, Elsevier, vol. 32(1), pages 251-264, March.
    10. Peter K. Schott, 2003. "One Size Fits All? Heckscher-Ohlin Specialization in Global Production," American Economic Review, American Economic Association, vol. 93(3), pages 686-708, June.
    11. Bournakis, Ioannis & Vecchi, Michela & Venturini, Francesco, 2015. "Off-shoring, specialization and R&D," MPRA Paper 68382, University Library of Munich, Germany.
    12. Dudley, Leonard & Moenius, Johannes, 2007. "The great realignment: How factor-biased innovation reshaped comparative advantage in the U.S. and Japan, 1970-1992," Japan and the World Economy, Elsevier, vol. 19(1), pages 112-132, January.
    13. James Harrigan, 2001. "Specialization and the volume of trade: do the data obey the laws?," Staff Reports 140, Federal Reserve Bank of New York.
    14. Yuk Ying Chang & Sudipto Dasgupta, 2002. "What Explains Cross-country Industry Growth Patterns? Trade, Development and the Equity Financing Channel," International Review of Finance, International Review of Finance Ltd., vol. 3(2), pages 105-129.
    15. Andrew B Bernard & J Bradford Jensen, 2001. "Who Dies? International Trade, Market Structure, and Industrial Restructuring," Working Papers 01-04, Center for Economic Studies, U.S. Census Bureau.
    16. Peter M. Morrow, 2008. "East is East and West is West: A Ricardian-Heckscher-Ohlin Model of Comparative Advantage," Working Papers 575, Research Seminar in International Economics, University of Michigan.
    17. Guadalupe Serrano & Francisco Requena & Joan Martin-Montaner, 2012. "Immigration, Factor Endowments and the Productive Structure of Spanish Regions, 1996--2005," Regional Studies, Taylor & Francis Journals, vol. 46(7), pages 927-945, November.
    18. DUDLEY, Leonard & MOENIUS, Johannes, 2003. "Directed Technical Change and International Trade," Cahiers de recherche 2003-18, Universite de Montreal, Departement de sciences economiques.
    19. Cusolito , Ana P. & Lederman, Daniel, 2009. "Technology adoption and factor proportions in open economies : theory and evidence from the global computer industry," Policy Research Working Paper Series 5043, The World Bank.
    20. Martins Bitans & Egils Kauzens, 2004. "Impact of the Euro Adoption on the Economy of Latvia," Working Papers 2004/02, Latvijas Banka.
    21. repec:wsi:medjxx:v:01:y:2009:i:01:n:s1793812009000048 is not listed on IDEAS

    More about this item

    Keywords

    Industrial location ; International trade ; Industrial productivity;

    JEL classification:

    • F1 - International Economics - - Trade

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