Do Geographic Scale Economies Explain Disturbances to Heckscher-Ohlin Trade?

Abstract:     
This paper examines whether "geographic scale economies" explain the trade that remains unexplained by the Heckscher-Ohlin model. The paper develops a theoretical specification that integrates geographic scale economies into the Heckscher-Ohlin model, and develops a statistical method for detecting geographic scale economies in the distributional features of a disturbance term. The units of analysis are US states. The findings reveal that empirical support for the Heckscher-Ohlin theory is improved by accounting for geographic scale economies within states; geographic scale economies do not generate differences in Rybczynski effects across states; and the scope of geographic scale economies is contained within states.

JEL Classification: F10, R12

Accepted Paper Series