The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Factor Content of Trade

  • Donald R. Davis
Reference work entry


Trade in goods is also implicitly trade in the services of the factors used to produce those goods. This insight underlies the Heckscher–Ohlin–Vanek model of factor service trade, and provides a laboratory to test our theories concerning world general equilibrium. In recent years this theory has undergone close empirical scrutiny. Early tests strongly rejected the simplest variants of the theory. More recent tests have imposed a modest number of additional restrictions suggested by the data. These involve cross-country heterogeneity in productivity, factor prices, consumption patterns, and the incorporation of non-traded goods. With these restrictions, the model fares well.


Factor content of trade Factor price equalization Heckscher–Ohlin trade theory Heckscher–Ohlin–Vanek factor content of trade theory Integrated equilibrium Total factor productivity 

JEL Classifications

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Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Donald R. Davis
    • 1
  1. 1.