Development-Related Biases in Factor Productivities and the HOV Model of Trade

43 Pages Posted: 19 Mar 2008

See all articles by Keith E. Maskus

Keith E. Maskus

University of Colorado at Boulder - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Shuichiro Nishioka

West Virginia University

Date Written: March 2008

Abstract

Past empirical failures of the basic Heckscher-Ohlin-Vanek (HOV) model related to the inability of data to meet its restrictive assumptions, particularly identical international technologies and factor price equalization. Trefler (1993) tried to resuscitate HOV by introducing a simple Hicks-neutral (HN) factor-productivity adjustment, an approach that was heavily criticized. In this paper, we re-examine the productivity question by estimating factor-specific productivities from the individual technology data of multiple countries. Using a dataset of 29 countries, both developed and developing, we find evidence of factor-augmenting technological differences. In particular, the factor-productivity adjustment works well for developed members of the OECD. Further, we find that the ratios of factor productivities are strongly correlated with corresponding factor endowments. This systematic bias implies that the ability of HOV to explain North-South factor trade depends both on relative factor abundance and factor-augmenting productivity gaps.

Keywords: Heckscher-Ohlin-Vanek, factor trade, productivity

JEL Classification: F10, F11

Suggested Citation

Maskus, Keith E. and Nishioka, Shuichiro, Development-Related Biases in Factor Productivities and the HOV Model of Trade (March 2008). CESifo Working Paper Series No. 2253, Available at SSRN: https://ssrn.com/abstract=1107800 or http://dx.doi.org/10.2139/ssrn.1107800

Keith E. Maskus (Contact Author)

University of Colorado at Boulder - Department of Economics ( email )

Campus Box 256
Boulder, CO 80309
United States
303-492-7588 (Phone)
303-492-8960 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Shuichiro Nishioka

West Virginia University ( email )

1601 University Avenue
Morgantown, WV 26506-6025
United States
(304) 293-7875 (Phone)

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