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The Structure of Factor Content Predictions

  • Daniel Trefler
  • Susan Chun Zhu

The last decade witnessed an explosion of research into the impact of international technology differences on the factor content of trade. Yet the literature has failed to confront two pivotal issues. First, with international technology differences and traded intermediate inputs there does not exist a Vanek-consistent definition of the factor content of trade. Restated, we do not know what we are trying to explain! We fill this gap by providing the correct definition. Second, as Helpman and Krugman (1985) showed, many models beyond Heckscher-Ohlin imply the Vanek prediction. So what model is being tested? We completely characterize the class of models being tested by providing a familiar `consumption similarity' condition that is necessary and sufficient for the Vanek prediction. We illustrate with a unique dataset containing input-output tables for 41 rich and poor countries. We find modest support for the strong version of the Vanek prediction and impressive support for weaker versions of the prediction.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11221.

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Date of creation: Mar 2005
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Publication status: published as Trefler, Daniel & Zhu, Susan Chun, 2010. "The structure of factor content predictions," Journal of International Economics, Elsevier, vol. 82(2), pages 195-207, November.
Handle: RePEc:nbr:nberwo:11221
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  1. Staiger, Robert W & Deardorff, Alan V & Stern, Robert M, 1988. "The Effects of Protection on the Factor Content of Japanese and American Foreign Trade," The Review of Economics and Statistics, MIT Press, vol. 70(3), pages 475-83, August.
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  3. Helpman, E., 1998. "The Structure of Foreign Trade," Papers 18-98, Tel Aviv.
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  6. Trefler, Daniel, 1999. "An Interview With Elhanan Helpman," Macroeconomic Dynamics, Cambridge University Press, vol. 3(04), pages 571-601, December.
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  13. Deardorff, Alan V., 1979. "Weak links in the chain of comparative advantage," Journal of International Economics, Elsevier, vol. 9(2), pages 197-209, May.
  14. Donald R. Davis & David E. Weinstein, 1998. "An Account of Global Factor Trade," NBER Working Papers 6785, National Bureau of Economic Research, Inc.
  15. Debeare, Peter, 2003. "Relative Factor Abundance and Trade," Journal of Political Economy, University of Chicago Press, vol. 111(3), pages 589-610, June.
  16. Daniel Trefler & Susan Chun Zhu, 2005. "The Structure of Factor Content Predictions," NBER Working Papers 11221, National Bureau of Economic Research, Inc.
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  18. Harrigan, James, 1997. "Technology, Factor Supplies, and International Specialization: Estimating the Neoclassical Model," American Economic Review, American Economic Association, vol. 87(4), pages 475-94, September.
  19. Susan Chun Zhu & Daniel Trefler, 2000. "Beyond the Algebra of Explanation: HOV for the Technology Age," American Economic Review, American Economic Association, vol. 90(2), pages 145-149, May.
  20. Hakura, Dalia S., 2001. "Why does HOV fail?: The role of technological differences within the EC," Journal of International Economics, Elsevier, vol. 54(2), pages 361-382, August.
  21. 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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  24. Werner Antweiler & Daniel Trefler, 2002. "Increasing Returns and All That: A View from Trade," American Economic Review, American Economic Association, vol. 92(1), pages 93-119, March.
  25. Harrigan, James, 1996. "Openness to trade in manufactures in the OECD," Journal of International Economics, Elsevier, vol. 40(1-2), pages 23-39, February.
  26. Robert J. Barro & Jong-Wha Lee, 2000. "International Data on Educational Attainment: Updates and Implications," CID Working Papers 42, Center for International Development at Harvard University.
  27. 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.
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