The Structure of Factor Content Predictions

45 Pages Posted: 28 Apr 2005 Last revised: 31 Aug 2010

See all articles by Daniel Trefler

Daniel Trefler

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

Susan Chun Zhu

Michigan State University - Department of Economics

Date Written: March 2005

Abstract

The last decade witnessed an explosion of research into the impact of international technology differences on the factor content of trade. Yet the literature has failed to confront two pivotal issues. First, with international technology differences and traded intermediate inputs there does not exist a Vanek-consistent definition of the factor content of trade. Restated, we do not know what we are trying to explain! We fill this gap by providing the correct definition. Second, as Helpman and Krugman (1985) showed, many models beyond Heckscher-Ohlin imply the Vanek prediction. So what model is being tested? We completely characterize the class of models being tested by providing a familiar `consumption similarity' condition that is necessary and sufficient for the Vanek prediction. We illustrate with a unique dataset containing input-output tables for 41 rich and poor countries. We find modest support for the strong version of the Vanek prediction and impressive support for weaker versions of the prediction.

Suggested Citation

Trefler, Daniel and Chun Zhu, Susan, The Structure of Factor Content Predictions (March 2005). NBER Working Paper No. w11221. Available at SSRN: https://ssrn.com/abstract=693082

Daniel Trefler (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada
416-978-4190 (Phone)
416-978-6713 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Susan Chun Zhu

Michigan State University - Department of Economics ( email )

214 Marshall Hall
East Lansing, MI 48824
United States
517-355-9647 (Phone)
517-432-1068 (Fax)

HOME PAGE: http://www.msu.edu/~ec/faculty/zhu/zhu.html

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