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Judging Factor Abundance

  • Harry P. Bowen
  • Leo Sveikauskas

Recent theoretical developments have cast doubt on the reliability of the commonly used cross-industry regression as a method for inferring a country's abundant factors. This paper examines the empirical importance of these theoretical cautions by comparing regression derived estimates of factor abundance with both revealed and actual factor abundances for thirty-five countries and up to twelve resources. Trade imbalances are found to importantly affect the regression estimates and we therefore derive and implement a theoretically consistent trade balance correction. The results indicate that despite theoretical concerns, the regression measures are often reliable indicators of revealed factor abundances. The results therefore enhance the credibility of the findings of the numerous regression studies that have been conducted over the past thirty years.

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File URL: http://www.nber.org/papers/w3059.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3059.

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Date of creation: Aug 1989
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Publication status: published as Quarterly Journal of Economics, Vol. 107, no. 2 (1992): 599-620.
Handle: RePEc:nbr:nberwo:3059
Note: ITI IFM
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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  1. Harkness, Jon P, 1983. "The Factor-Proportions Model with Many Nations, Goods and Factors: Theory and Evidence," The Review of Economics and Statistics, MIT Press, vol. 65(2), pages 298-305, May.
  2. 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.
  3. Lawrence F. Katz & Lawrence H. Summers, 1988. "Can Inter-Industry Wage Differentials Justify Strategic Trade Policy?," NBER Working Papers 2739, National Bureau of Economic Research, Inc.
  4. Baldwin, Robert E & Hilton, R Spence, 1984. "A Technique for Indicating Comparative Costs and Predicting Changes in Trade Ratios," The Review of Economics and Statistics, MIT Press, vol. 66(1), pages 105-10, February.
  5. Harkness, Jon P, 1978. "Factor Abundance and Comparative Advantage," American Economic Review, American Economic Association, vol. 68(5), pages 784-800, December.
  6. Leamer, Edward E & Bowen, Harry P, 1981. "Cross-Section Tests of the Heckscher-Ohlin Theorem: Comment [Factor Abundance and Comparative Advantage]," American Economic Review, American Economic Association, vol. 71(5), pages 1040-43, December.
  7. Crafts, Nicholas & Thomas, Stephen H, 1985. "Comparative Advantage in UK Manufacturing Trade, 1910-1935," CEPR Discussion Papers 83, C.E.P.R. Discussion Papers.
  8. Baldwin, Robert E, 1971. "Determinants of the Commodity Structure of U.S. Trade," American Economic Review, American Economic Association, vol. 61(1), pages 126-46, March.
  9. Balassa, Bela, 1979. "The Changing Pattern of Comparative Advantage in Manufactured Goods," The Review of Economics and Statistics, MIT Press, vol. 61(2), pages 259-66, May.
  10. Krueger, Alan B & Summers, Lawrence H, 1988. "Efficiency Wages and the Inter-industry Wage Structure," Econometrica, Econometric Society, vol. 56(2), pages 259-93, March.
  11. Branson, William H. & Monoyios, Nikolaos, 1977. "Factor inputs in U.S. trade," Journal of International Economics, Elsevier, vol. 7(2), pages 111-131, May.
  12. Leamer, Edward E, 1987. "Paths of Development in the Three-Factor, n-Good General Equilibrium Model," Journal of Political Economy, University of Chicago Press, vol. 95(5), pages 961-99, October.
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