Endowments, Skill-Biased Technology, and Factor Prices: A Unified Approach to Trade

44 Pages Posted: 6 Dec 2017 Last revised: 17 Oct 2021

See all articles by Peter Morrow

Peter Morrow

University of Toronto

Daniel Trefler

University of Toronto - Rotman School of Management; National Bureau of Economic Research (NBER)

Date Written: November 2017

Abstract

We develop a multi-factor, multi-sector Eaton-Kortum model in order to examine the impact of trade costs, factor endowments, and technology (both Ricardian and factor-augmenting) on factor prices, trade in goods, and trade in the services of primary factors (value-added trade). This framework nests the Heckscher-Ohlin-Vanek (HOV) model and the Vanek factor content of trade prediction. We take the model to the data using skilled and unskilled data for 38 countries. We have two findings. First, the key determinants of international variation in the factor content of trade are endowments and international variation in factor inputs used per dollar of output. Input-usage variation in turn is driven by (1) factor-augmenting international technology differences and (2) international factor price differences. Second, our estimates of factor-augmenting international technology differences — which imply cross-country variation in skill-biased technologies — are empirically similar to those used to rationalize cross-country evidence on income differences and directed technical change.

Suggested Citation

Morrow, Peter and Trefler, Daniel, Endowments, Skill-Biased Technology, and Factor Prices: A Unified Approach to Trade (November 2017). NBER Working Paper No. w24078, Available at SSRN: https://ssrn.com/abstract=3082260

Peter Morrow (Contact Author)

University of Toronto ( email )

Daniel Trefler

University of Toronto - Rotman School of Management ( email )

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