Keywords: Heckscher-Ohlin theory, comparative advantage, relative factor supplies
Abstract: A core prediction of the Heckscher-Ohlin theory is that
countries specialize in goods in which they have a comparative
advantage, and that the source of comparative advantage is
differences in relative factor supplies. To examine this
theory, we use the most extensive dataset available and
document the pattern of industrial specialization and factor
endowment differences in a broad sample of rich and
developing countries over a lengthy period (1970-92). Next,
we develop an empirical model of specialization based on
factor endowments, allowing for unmeasurable technological
differences and estimate it using panel data techniques.
In addition to estimating the effects of factor endowments,
we also consider an alternative hypothesis that the level
of aggregate productivity by itself can explain specialization.
Our results clearly show the importance of factor endowments
on specialization: relative endowments do matter.
Full paper (1183 KB PDF)
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Last update: October 26, 2000