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Factor Content of Bilateral Trade: The Role of Firm Heterogeneity and Transaction Costs

  • d'Artis Kancs
  • Pavel Ciaian

In this paper we study the determinants of the factor content of the CEE agricultural trade. Examining empirically three hypothesis, which relate cross-country differences in technology, relative factor abundance and transaction costs and market imperfections to the factor content of trade we find that the first two hypotheses are confirmed by the majority of developed EU countries, but rejected by roughly one half of the CEE transition country pairs. Second, we find that when accounting for transaction costs of farm (re)organization, both hypotheses are confirmed by the majority of the CEE country pairs. These findings provide empirical evidence of market imperfections, and particularly, of transaction costs of farm (re)organization in the CEE.

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Paper provided by LICOS - Centre for Institutions and Economic Performance, KU Leuven in its series LICOS Discussion Papers with number 23809.

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Date of creation: 2009
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Handle: RePEc:lic:licosd:23809
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  1. Ciaian, Pavel & Kancs, d'Artis & Pokrivcak, Jan, 2008. "Comparative Advantages, Transaction Costs and Factor Content in Agricultural Trade: Empirical Evidence from the CEE," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 44135, European Association of Agricultural Economists.
  2. Lai, Huiwen & Zhu, Susan Chun, 2007. "Technology, endowments, and the factor content of bilateral trade," Journal of International Economics, Elsevier, vol. 71(2), pages 389-409, April.
  3. d'Artis Kancs, 2007. "Trade Growth in a Heterogeneous Firm Model: Evidence from South Eastern Europe," The World Economy, Wiley Blackwell, vol. 30(7), pages 1139-1169, 07.
  4. Davis, D.R. & Weinstein, D.E., 1999. "An Account of Global Factor Trade," Working Papers 435, Research Seminar in International Economics, University of Michigan.
  5. Schluter, Gerald E. & Lee, Gene K., 1978. "Is Leontief'S Paradox Applicable To U.S. Agricultural Trade?," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 3(02), December.
  6. Pavel Ciaian & Johan Swinnen, 2005. "Land Market Imperfections and Agricultural Policy Impacts in the New EU Member States: A Partial Equilibrium Analysis," LICOS Discussion Papers 15805, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
  7. Debeare, Peter, 2003. "Relative Factor Abundance and Trade," Journal of Political Economy, University of Chicago Press, vol. 111(3), pages 589-610, June.
  8. G. Steven Olley & Ariel Pakes, 1992. "The Dynamics of Productivity in the Telecommunications Equipment Industry," NBER Working Papers 3977, National Bureau of Economic Research, Inc.
  9. Yong-Seok Choi & Pravin Krishna, 2004. "The Factor Content of Bilateral Trade: An Empirical Test," Journal of Political Economy, University of Chicago Press, vol. 112(4), pages 887-914, August.
  10. Ciaian, Pavel & Swinnen, Johan F.M., 2008. "Credit Market Imperfections and the Distribution of Policy Rents," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 44050, European Association of Agricultural Economists.
  11. Pavel Ciaian & Johan F.M. Swinnen, 2007. "Credit Market Imperfections and the Distribution of Policy Rents: The Common Agricultural Policy in the New EU Member States," LICOS Discussion Papers 18307, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
  12. Lee, Chinkook & Wills, Darryl & Schluter, Gerald, 1988. "Examining the leontief paradox in U.S. agricultural trade," Agricultural Economics, Blackwell, vol. 2(3), pages 259-272, November.
  13. Ciaian, Pavel & Swinnen, Johan F.M., 2006. "AJAE Appendix: Land Market Imperfections and Agricultural Policy Impacts in the New EU Member States: A Partial Equilibrium Analysis," American Journal of Agricultural Economics Appendices, Agricultural and Applied Economics Association, vol. 88(4), November.
  14. Ciaian, Pavel & Kancs, d'Artis & Pokrivcak, Jan, 2011. "Comparative Advantages, Transaction Costs and Factor Content in Agricultural Trade: Empirical Evidence from the CEE - Vantaggi comparati, costi di transazione e contenuto dei fattori nel commercio agr," Economia Internazionale / International Economics, Camera di Commercio di Genova, vol. 64(1), pages 67-101.
  15. 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.
  16. Scott Rozelle & Johan F.M. Swinnen, 2004. "Success and Failure of Reform: Insights from the Transition of Agriculture," Journal of Economic Literature, American Economic Association, vol. 42(2), pages 404-456, June.
  17. Pollak, Robert A, 1985. "A Transaction Cost Approach to Families and Households," Journal of Economic Literature, American Economic Association, vol. 23(2), pages 581-608, June.
  18. Lerman, Zvi, 2001. "Agriculture in transition economies: from common heritage to divergence," Agricultural Economics, Blackwell, vol. 26(2), pages 95-114, November.
  19. Allen, Douglas W & Lueck, Dean, 1998. "The Nature of the Farm," Journal of Law and Economics, University of Chicago Press, vol. 41(2), pages 343-86, October.
  20. Staiger, Robert W., 1986. "Measurement of the factor content of foreign trade with traded intermediate goods," Journal of International Economics, Elsevier, vol. 21(3-4), pages 361-368, November.
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