The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Factor Content of Trade

  • Donald R. Davis
Reference work entry
DOI: https://doi.org/10.1057/978-1-349-95189-5_2249

Abstract

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.

Keywords

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

B2 
This is a preview of subscription content, log in to check access.

Bibliography

  1. Bowen, H.P., E.E. Leamer, and S. Leo. 1987. Multicountry, multifactor tests of the factor abundance theory. American Economic Review 77: 791–809.Google Scholar
  2. Choi, Y.S., and P. Krishna. 2004. The factor content of bilateral trade: An empirical test. Journal of Political Economy 112: 887–914.CrossRefGoogle Scholar
  3. Davis, D.R., and D.E. Weinstein. 2001a. An account of global factor trade. American Economic Review 91: 1423–1454.CrossRefGoogle Scholar
  4. Davis, D.R., and D.E. Weinstein. 2001b. Do factor endowments matter for North–North trade? Working Paper No. 8516, NBER, Cambridge, MA.Google Scholar
  5. Davis, D.R., and D.E. Weinstein. 2003. The factor content of trade. In Handbook of international trade, ed. J.C. Harrigan. London: Blackwell.Google Scholar
  6. Davis, D.R., D.E. Weinstein, S. Bradford, and S. Kazushige. 1997. Using international and Japanese regional data to determine when the factor abundance theory of trade works. American Economic Review 87: 421–446.Google Scholar
  7. Feenstra, R.C., and G.H. Hanson. 2000. Aggregation bias in the factor content of trade: Evidence from U.S. manufacturing. American Economic Review 90: 155–160.CrossRefGoogle Scholar
  8. Helpman, E. 1984. The factor content of foreign trade. Economic Journal 94: 84–94.CrossRefGoogle Scholar
  9. Helpman, E., and P. Krugman. 1985. Market structure and foreign trade. Cambridge, MA: MIT Press.Google Scholar
  10. Reimer, J.J. 2006. Global production sharing and trade in the services of factors. Journal of International Economics 68: 384–408.CrossRefGoogle Scholar
  11. Trefler, D. 1993. International factor price differences: Leontief was right! Journal of Political Economy 101: 961–987.CrossRefGoogle Scholar
  12. Trefler, D. 1995. The case of the missing trade and other mysteries. American Economic Review 85: 1029–1046.Google Scholar
  13. Vanek, J. 1968. The factor proportions theory: The N-factor case. Kyklos 21: 749–756.CrossRefGoogle Scholar

Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Donald R. Davis
    • 1
  1. 1.