We thank David Hummels and seminar participants at Purdue, Indiana and the Spring 2006 Midwest Meetings, for helpful suggestions.
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Factor Uses and the Pattern of Specialization
Article first published online: 3 MAR 2008
DOI: 10.1111/j.1467-9396.2007.00721.x
© 2008 The Authors
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How to Cite
Schaur, G., Xiang, C. and Savikhin, A. (2008), Factor Uses and the Pattern of Specialization. Review of International Economics, 16: 368–382. doi: 10.1111/j.1467-9396.2007.00721.x
Publication History
- Issue published online: 3 MAR 2008
- Article first published online: 3 MAR 2008
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Abstract
We show that in the setting of multiple goods and factors, the factor proportions theory has the following prediction: across industries, the impacts of the endowment of a given factor on industry outputs have positive co-variance with the relative uses of this factor. The intuition is that, on average, the industries that use a given factor heavily have positive output responses, following an increase in the endowment of this factor. This co-variation condition is robust to Hicks neutral- and factor-augmenting productivity differences, and constitutes a direct test of the production side of the factor proportions theory. We also show that the co-variation condition finds empirical support. This is evidence that is consistent with the factor proportions theory.