International Specialization and the Return to Capital
60 Pages Posted: 1 Feb 2010
Abstract
How does factor accumulation affect the pattern of international specialization and returns to capital? We provide a new integrated treatment to this question using a panel of 44 developing and developed countries over the period 1976-2000. We confirm the Heckscher-Ohlin prediction that, with sufficient differences in country endowments, there is no factor price equalization and countries specialize in different subsets of goods. Innovatively, we obtain the returns to capital implied by this model: these are consistent with the Lucas paradox, which we explain after accounting for cross-country differences in the cost of capital goods. We also find that, along their development path, countries have often experienced structural change in the form of intra-industry specialization. Our findings are consistent with Ventura's hypothesis that growth can be promoted in this way through "beating the curse of diminishing returns" ヨ indeed we find no decrease in the return to capital at any given capital-labor ratio despite capital accumulation by most countries within a cone of diversification.
Keywords: economic growth and international trade, Heckscher-Ohlin, multiple cones of diversification, marginal product of capital, return to capital, Lucas paradox, specialization
JEL Classification: F11, F21, O40
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Technology, Factor Supplies and International Specialization: Estimating the Neoclassical Model
-
Do Endowments Predict the Location of Production? Evidence from National and International Data
-
One Size Fits All? Heckscher-Ohlin Specialization in Global Production
-
The Heckscher-Ohlin-Vanek Model of Trade: Why Does it Fail? When Does it Work?
By Donald R. Davis, David E. Weinstein, ...
-
Increasing Returns and All that: A View from Trade
By Werner Antweiler and Daniel Trefler
-
Estimation of Cross-Country Differences in Industry Production Functions
-
Specialization and the Volume of Trade: Do the Data Obey the Laws?