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Does Economic Geography Matter for International Specialization?

  • Davis, D.R.
  • Weinstein, D.E.

There are two principal theories of why countries trade: comparative advantage and increasing returns to scale. Yet there is no empirical work that assesses the relative importance of these two theories in accounting for production structure and trade. We use a framework that nests an increasing returns model of economic geography featuring "home market" effects with that of Heckscher-Ohlin. We employ these trade models to account for the structure of OECD manufacturing production. The data militate against the economic geography framework. Relatively few sectors match its theoretical predictions. Moreover, of the explainable variation in production patterns, endowments account for 90 per cent, economic geography but 5 per cent.

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Paper provided by Research Seminar in International Economics, University of Michigan in its series Working Papers with number 403.

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Length: 47 pages
Date of creation: 1997
Date of revision:
Handle: RePEc:mie:wpaper:403
Contact details of provider: Postal: ANN ARBOR MICHIGAN 48109
Web page: http://fordschool.umich.edu/rsie/

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  1. 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.
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  4. Dow, James & Werlang, Sérgio Ribeiro da Costa, 1991. "Homothetic preferences," Economics Working Papers (Ensaios Economicos da EPGE) 176, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
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  7. 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.
  8. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-59, December.
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  11. Deardorff, A.V., 1995. "Determinants of Bilateral Trade : Does Gravity Work in a Neoclassical World?," Papers 95-05, Michigan - Center for Research on Economic & Social Theory.
  12. Leamer, Edward E. & Levinsohn, James, 1995. "International trade theory: The evidence," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 26, pages 1339-1394 Elsevier.
  13. Leamer, Edward E, 1980. "The Leontief Paradox, Reconsidered," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 495-503, June.
  14. 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.
  15. Donald R. Davis & David E. Weinstein & Scott C. Bradford & Kazushige Shimpo, 1996. "The Heckscher-Ohlin-Vanek Model of Trade: Why Does It Fail? When Does It Work?," NBER Working Papers 5625, National Bureau of Economic Research, Inc.
  16. Harrigan, James, 1994. "Scale Economies and the Volume of Trade," The Review of Economics and Statistics, MIT Press, vol. 76(2), pages 321-28, May.
  17. Deardoff, A.V., 1995. "Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?," Working Papers 382, Research Seminar in International Economics, University of Michigan.
  18. Weder, Rolf, 1995. "Linking Absolute and Comparative Advantage to Intra-industry Trade Theory," Review of International Economics, Wiley Blackwell, vol. 3(3), pages 342-54, October.
  19. Helpman, Elhanan, 1981. "International trade in the presence of product differentiation, economies of scale and monopolistic competition : A Chamberlin-Heckscher-Ohlin approach," Journal of International Economics, Elsevier, vol. 11(3), pages 305-340, August.
  20. 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.
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