"Endowments Do Matter" Relative Factor Abundance and Trade
A test of the Heckscher-Ohlin-Vanek [HOV] hypothesis for the cases when factor price equalization does not hold is developed. For all the possible country pairs of the BLS (1987) and Trefler (1995) data set, I test whether trade reveals the relative factor abundance of one country compared to another. For the factor pairs capital-labor, labor-land and land-capital, I investigate whether the higher endowment ratio of one country compared to another is reflected in their multilateral trade. A strength of the method is that technology differences, measurement error or home bias are allowed for, but do not have to be estimated. For the hundreds of country pairs, the relative abundance of two countries is revealed in trade in about 75 percent of the cases. In other words, endowments do matter.
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