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Heckscher-Ohlin Specialization and the Marginal Product of Capital, 1976-2000

  • Catia Batista
  • Jacques Potin

This paper estimates the Heckscher-Ohlin (HO) model of international specialization with a panel of 44 developing and developed countries between 1976 and 2000. As Schott (2003), our empirical model includes multiple cones and recasts industry-level data in theoretically appropriate HO aggregates, i.e. sets of goods with similar factor intensities. The time dimension enables us to obtain better estimates of international total factor productivity differences and of the development path of each country. We correct for international differences in factor qualities and prices. For capital, we use the results of Eaton-Kortum (2001) who find a higher cost of capital in poor countries. Consistent with neoclassical theory, the estimated values for the marginal product of capital are on average higher in poorer countries. Nevertheless, once we adjust for the fact that capital is more expensive in these countries, we find that the financial rate of return of capital investment is rather similar in rich and poor countries, thereby explaining the Lucas (1990) paradox.

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File URL: http://www.economics.ox.ac.uk/materials/working_papers/paper357.pdf
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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 357.

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Date of creation: 01 Sep 2007
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Handle: RePEc:oxf:wpaper:357
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  1. James Harrigan, 1996. "Technology, Factor Supplies and International Specialization: Estimating the Neoclassical Model," NBER Working Papers 5722, National Bureau of Economic Research, Inc.
  2. Alan V. Deardorff, 1974. "A Geometry of Growth and Trade," Canadian Journal of Economics, Canadian Economics Association, vol. 7(2), pages 295-306, May.
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  4. Francesco Caselli, 2005. "Accounting for Cross-Country Income Differences," CEP Discussion Papers dp0667, Centre for Economic Performance, LSE.
  5. Chang-Tai Hsieh, 1999. "Productivity Growth and Factor Prices in East Asia," American Economic Review, American Economic Association, vol. 89(2), pages 133-138, May.
  6. Caselli, Francesco & Feyrer, James, 2005. "The Marginal Product of Capital," CEPR Discussion Papers 5203, C.E.P.R. Discussion Papers.
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  8. Peter Debaere & Ufuk Demiroglu, 2006. "Factor Accumulation without Diminishing Returns: the Case of East Asia," Review of International Economics, Wiley Blackwell, vol. 14(1), pages 16-29, 02.
  9. 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.
  10. Cuñat, Alejandro & Maffezzoli, Marco, 2002. "Neoclassical Growth and Commodity Trade," CEPR Discussion Papers 3322, C.E.P.R. Discussion Papers.
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  12. Ulrich R. Kohli, 1978. "A Gross National Product Function and the Derived Demand for Imports and Supply of Exports," Canadian Journal of Economics, Canadian Economics Association, vol. 11(2), pages 167-82, May.
  13. Miklós Koren & Silvana Tenreyro, 2007. "Volatility and Development," The Quarterly Journal of Economics, MIT Press, vol. 122(1), pages 243-287, 02.
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  15. Jeffrey Sachs & Andrew Warner, 1995. "Economic Reform and the Progress of Global Integration," Harvard Institute of Economic Research Working Papers 1733, Harvard - Institute of Economic Research.
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  17. Debaere, Peter & Demiroglu, Ufuk, 2003. "On the similarity of country endowments," Journal of International Economics, Elsevier, vol. 59(1), pages 101-136, January.
  18. Jeffrey R. Bernstein & David E. Weinstein, 1998. "Do Endowments Predict the Location of Production? Evidence from National and International Data," NBER Working Papers 6815, National Bureau of Economic Research, Inc.
  19. Trefler, Daniel, 1995. "The Case of the Missing Trade and Other Mysteries," American Economic Review, American Economic Association, vol. 85(5), pages 1029-46, December.
  20. Dornbusch, Rudiger & Fischer, Stanley & Samuelson, Paul A, 1980. "Heckscher- Ohlin Trade Theory with a Continuum of Goods," The Quarterly Journal of Economics, MIT Press, vol. 95(2), pages 203-24, September.
  21. Peter K. Schott, 2001. "One Size Fits All? Heckscher-Ohlin Specialization in Global Production," NBER Working Papers 8244, National Bureau of Economic Research, Inc.
  22. Stephen Redding, 2002. "Specialization dynamics," LSE Research Online Documents on Economics 210, London School of Economics and Political Science, LSE Library.
  23. Chang-Tai Hsieh & Peter J. Klenow, 2003. "Relative Prices and Relative Prosperity," NBER Working Papers 9701, National Bureau of Economic Research, Inc.
  24. Francesco Caselli & James Feyrer, 2006. "The marginal product of capital," LSE Research Online Documents on Economics 3560, London School of Economics and Political Science, LSE Library.
  25. Ventura, Jaume, 1997. "Growth and Interdependence," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 57-84, February.
  26. Jones, Charles I., 1994. "Economic growth and the relative price of capital," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 359-382, December.
  27. John Romalis, 2004. "Factor Proportions and the Structure of Commodity Trade," American Economic Review, American Economic Association, vol. 94(1), pages 67-97, March.
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