Factor Supplies and Specialization in the World Economy

52 Pages Posted: 13 Aug 2000 Last revised: 25 Jun 2001

See all articles by James Harrigan

James Harrigan

University of Virginia - Department of Economics; National Bureau of Economic Research (NBER)

Egon Zakrajsek

Federal Reserve Board - Division of Monetary Affairs

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Date Written: August 2000

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 the 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.

Suggested Citation

Harrigan, James and Zakrajsek, Egon, Factor Supplies and Specialization in the World Economy (August 2000). NBER Working Paper No. w7848. Available at SSRN: https://ssrn.com/abstract=239089

James Harrigan (Contact Author)

University of Virginia - Department of Economics ( email )

P.O. Box 400182
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National Bureau of Economic Research (NBER)

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Egon Zakrajsek

Federal Reserve Board - Division of Monetary Affairs ( email )

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Washington, DC 20551
United States
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202-452-3819 (Fax)

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