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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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  8. Chang-Tai Hsieh & Peter J. Klenow, 2003. "Relative prices and relative prosperity," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
  9. Peter K. Schott, 2001. "One Size Fits All? Heckscher-Ohlin Specialization in Global Production," NBER Working Papers 8244, National Bureau of Economic Research, Inc.
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  26. Peter K. Schott, 2004. "Across-product Versus Within-product Specialization in International Trade," The Quarterly Journal of Economics, MIT Press, vol. 119(2), pages 646-677, May.
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