Theory-Based Empirical Implementation

Abstract

The main purpose of this study is to develop, in the framework of the factor proportions theory, empirical models, to be further used to explain the trade patterns for particular countries. One may either formulate tests based directly or indirectly on the HOV equation and its generalizations derived in Sections 2 and 3 (e.g. simple correlations and ranking propositions) or try to get theory-based regression equations. Whilst, to apply the first approach, we only have to assume that HOV holds, to use a regression approach one has also to rely on an approximation. Remember that the HOV equation for a particular country j is:

$${\theta ^T}{t^{jv}} = {W^j}{\bar v^j} - {s^j}\sum\limits_j {{W^j}{{\bar v}^j}}$$

(see equation (2.18)). For a particular factor h, equation (2.18) becomes:

$${\theta ^{hT}}{t^{jv}} = {w^{hj}}{\bar v^{hj}} - {s^j}\sum\limits_j {{w^{hj}}{{\bar v}^{hj}}}$$