The Factor Content of Bilateral Trade: An Empirical Test

Posted: 8 Jul 2004

See all articles by Pravin Krishna

Pravin Krishna

Johns Hopkins University - Paul H. Nitze School of Advanced International Studies (SAIS); Brown University - Department of Economics; National Bureau of Economic Research (NBER)

Abstract

The factor proportions model of international trade is one of the most influential theories in international economics. Its central standing in this field has appropriately prompted, particularly recently, intense empirical scrutiny. A substantial and growing body of empirical work has tested the predictions of the theory on the net factor content of a country's trade with the rest of the world, usually under the maintained assumptions of factor price equalization and identical homothetic preferences across trading countries (or under quite specific relaxations of these assumptions). In contrast, this paper uses OECD production and trade data to test the restrictions (derived by Helpman) on the factor content of trade flows that hold even under nonequalization of factor prices and in the absence of any assumptions regarding consumer preferences. In a further contrast with most of the existing literature, which has focused on the factor content of a country's multilateral trade, our tests concern bilateral trade flows, thereby enabling the examination of trade flows between only a subset of countries for which quality data (relatively speaking) are available. We find that restrictions implied by the theory cannot be rejected for the vast majority of country pairs considered in our analysis.

Suggested Citation

Krishna, Pravin, The Factor Content of Bilateral Trade: An Empirical Test. Journal of Political Economy, Vol. 112, pp. 887-914, August 2004. Available at SSRN: https://ssrn.com/abstract=562408

Pravin Krishna (Contact Author)

Johns Hopkins University - Paul H. Nitze School of Advanced International Studies (SAIS) ( email )

1740 Massachusetts Avenue, NW
Washington, DC 20036-1984
United States

Brown University - Department of Economics ( email )

64 Waterman Street
Providence, RI 02912
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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