The Heckscher-Ohlin-Vanek Model of Trade: Why Does it Fail? When Does it Work?

52 Pages Posted: 13 Jul 2000

See all articles by Donald R. Davis

Donald R. Davis

National Bureau of Economic Research (NBER); Columbia University

David E. Weinstein

Columbia University - Graduate School of Arts and Sciences - Department of Economics; National Bureau of Economic Research (NBER)

Scott C. Bradford

Brigham Young University - Department of Economics

Kazushige Shimpo

Keio University

Date Written: June 1996

Abstract

The Heckscher-Ohlin-Vanek model of factor service trade is a central construct in international economics. Empirically, though, it is a flop. This warrants a new approach. Using Japanese regional data we are able to test the HOV model by independently examining its component production and consumption elements. The strict HOV model performs poorly because it cannot explain the international location of production. However, relaxing the assumption of universal factor price equalization yields a dramatic improvement. We also solve most of what Trefler (1995) calls the mystery of the missing trade. In sum, the HOV model performs remarkably well.

Suggested Citation

Davis, Donald R. and Weinstein, David E. and Bradford, Scott C. and Shimpo, Kazushige, The Heckscher-Ohlin-Vanek Model of Trade: Why Does it Fail? When Does it Work? (June 1996). NBER Working Paper No. w5625, Available at SSRN: https://ssrn.com/abstract=225554

Donald R. Davis (Contact Author)

National Bureau of Economic Research (NBER) ( email )

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Columbia University ( email )

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David E. Weinstein

Columbia University - Graduate School of Arts and Sciences - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Scott C. Bradford

Brigham Young University - Department of Economics

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United States

Kazushige Shimpo

Keio University

2-15-45 Mita, Ninato-ku
Tokyo, 108-8345
Japan

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