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Technology, factor supplies, and international specialization: estimating the neoclassical model

  • James Harrigan

The standard neoclassical model of trade theory predicts that international specialization will be jointly determined by cross-country differences in relative factor endowments and relative technology levels. This paper uses economic theory to specify an empirical model of specialization consistent with the neoclassical explanation. According to the empirical model, a sector's share in GDP depends on both relative factor supplies and relative technology differences, and the estimated parameters of the model have a close and clear connection to theoretical parameters. The model is estimated for manufacturing sectors using a twenty-year, ten-country panel of data on the industrialized countries. Relative technology levels and factor supplies are both found to be an important determinant of specialization.

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Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 15.

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Date of creation: 1996
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Publication status: Published in American Economic Review 87, no. 4 (September 1997): 475-94
Handle: RePEc:fip:fednsr:15
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  1. Barro, Robert J. & Lee, Jong-Wha, 1993. "International comparisons of educational attainment," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 363-394, December.
  2. Trefler, Daniel, 1995. "The Case of the Missing Trade and Other Mysteries," American Economic Review, American Economic Association, vol. 85(5), pages 1029-46, December.
  3. Harry P. Bowen & Edward E. Leamer & Leo Sveikauskas, 1986. "Multicountry, Multifactor Tests of the Factor Abundance Theory," NBER Working Papers 1918, National Bureau of Economic Research, Inc.
  4. Helpman, Elhanan, 1984. "Increasing returns, imperfect markets, and trade theory," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 7, pages 325-365 Elsevier.
  5. Diewert, W. Erwin, 1978. "Hick's Aggregation Theorem and the Existence of a Real Value Added Function," Histoy of Economic Thought Chapters, in: Fuss, Melvyn & McFadden, Daniel (ed.), Production Economics: A Dual Approach to Theory and Applications, volume 2, chapter 2 McMaster University Archive for the History of Economic Thought.
  6. Trefler, Daniel, 1993. "International Factor Price Differences: Leontief Was Right!," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 961-87, December.
  7. 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 272-85, May.
  8. James Harrigan, 1998. "Estimation of cross-country differences in industry production functions," Staff Reports 36, Federal Reserve Bank of New York.
  9. James Harrigan, 1997. "Cross-country comparisons of industry total factor productivity: theory and evidence," Research Paper 9734, Federal Reserve Bank of New York.
  10. Staiger, Robert W., 1988. "A specification test of the Heckscher-Ohlin theory," Journal of International Economics, Elsevier, vol. 25(1-2), pages 129-141, August.
  11. Caves, Douglas W & Christensen, Laurits R & Diewert, W Erwin, 1982. "Multilateral Comparisons of Output, Input, and Productivity Using Superlative Index Numbers," Economic Journal, Royal Economic Society, vol. 92(365), pages 73-86, March.
  12. Deardorff, Alan V., 1984. "Testing trade theories and predicting trade flows," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 10, pages 467-517 Elsevier.
  13. Markusen, James R, 1986. "Explaining the Volume of Trade: An Eclectic Approach," American Economic Review, American Economic Association, vol. 76(5), pages 1002-11, December.
  14. Edward E. Leamer & James Levinsohn, 1994. "International Trade Theory: The Evidence," NBER Working Papers 4940, National Bureau of Economic Research, Inc.
  15. Klepper, Steven & Leamer, Edward E, 1984. "Consistent Sets of Estimates for Regressions with Errors in All Variables," Econometrica, Econometric Society, vol. 52(1), pages 163-83, January.
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