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A Dual Definition for the Factor Content of Trade and its Effect on Factor Rewards in US Manufacturing Sector

  • Agelos Delis
  • Theofanis P. Mamuneas

In this paper, first we introduce a dual definition of the Factor Content of Trade (FCT) using the concept of the equivalent autarky equilibrium. A FCT vector is calculated by estimating a symmetric normalized quadratic revenue function for the US manufacturing sector for the period 1965 to 1991. The FCT for capital is positive, while the FCT for skilled and unskilled labor are both negative, suggesting that the Leontief Paradox was not present for the period of investigation. Capital is revealed by trade to be relatively more abundant compared to either type of labor, while skilled labor is relatively more abundant than unskilled labor. Then using the quadratic approximation lemma, the growth rate of the factor rewards is related to the growth rate of FCT, the growth rate of endowments and technological change. We find that technological change is the most important determinant in explaining wage inequality between skilled and unskilled workers in US manufacturing between 1967 and 1991.

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Paper provided by University of Nottingham, GEP in its series Discussion Papers with number 08/35.

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Handle: RePEc:not:notgep:08/35
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  1. George J. Borjas & Richard B. Freeman & Lawrence F. Katz, 1992. "On the Labor Market Effects of Immigration and Trade," NBER Chapters, in: Immigration and the Workforce: Economic Consequences for the United States and Source Areas, pages 213-244 National Bureau of Economic Research, Inc.
  2. Edward E. Leamer, 1994. "Trade, Wages and Revolving Door Ideas," NBER Working Papers 4716, National Bureau of Economic Research, Inc.
  3. Baldwin, Robert E & Cain, Glen C, 1997. "Shifts in US Relative Wages: The Role of Trade, Technology and Factor Endowments," CEPR Discussion Papers 1596, C.E.P.R. Discussion Papers.
  4. Deardorff, Alan V. & Staiger, Robert W., 1988. "An interpretation of the factor content of trade," Journal of International Economics, Elsevier, vol. 24(1-2), pages 93-107, February.
  5. Leamer, E. & Levingsohn, J., 1994. "International Trade Theory: The Evidence," Working Papers 368, Research Seminar in International Economics, University of Michigan.
  6. 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.
  7. W. Erwin Diewert & T.J. Wales, 1989. "Flexible Functional Forms and Global Curvature Conditions," NBER Technical Working Papers 0040, National Bureau of Economic Research, Inc.
  8. repec:fth:harver:1487 is not listed on IDEAS
  9. Bowen, Harry P & Leamer, Edward E & Sveikauskas, Leo, 1987. "Multicountry, Multifactor Tests of the Factor Abundance Theory," American Economic Review, American Economic Association, vol. 77(5), pages 791-809, December.
  10. Adrian Wood, 1995. "How Trade Hurt Unskilled Workers," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 57-80, Summer.
  11. Leamer, Edward E, 1980. "The Leontief Paradox, Reconsidered," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 495-503, June.
  12. Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
  13. Paul Krugman, 1995. "Technology, Trade, and Factor Prices," NBER Working Papers 5355, National Bureau of Economic Research, Inc.
  14. James Harrigan, 2001. "Specialization and the Volume of Trade: Do the Data Obey the Laws?," NBER Working Papers 8675, National Bureau of Economic Research, Inc.
  15. Peter B. Kenen, 1965. "Nature, Capital, and Trade," Journal of Political Economy, University of Chicago Press, vol. 73, pages 437.
  16. Wood Júnior, Thomaz, 1995. "Workers," RAE - Revista de Administração de Empresas, FGV-EAESP Escola de Administração de Empresas de São Paulo (Brazil), vol. 35(2), January.
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