Do Countries Specialize?

Abstract

Do rich and poor countries compete by exporting the same mix of goods to the US? Using highly disaggregate trade flow data ? which breaks US imports into thousands rather than tens of goods ? this paper documents two significant trends. First, the portion of US imports originating in either rich or poor countries exclusively has fallen dramatically as world trade has increased, from 50% in 1972 to 25% in 1994. This heightened export competition among countries with vastly different factor endowments is greatest in manufactures, particularly apparel and textiles, and smallest in natural resources. Second, when rich and poor countries both export a manufactured good to the US, rich countries receive a significantly higher price for their export than poor countries, and this disparity increases with time. To the extent that this heterogeneity maps into product differences, it consistent with the type of specialization implied by both the Heckscher-Ohlin model of trade and Product Cycle theory. On the other hand, significant intra-good price differences are troubling for existing empirical trade research because they suggest that even a very fine categorization of commodities may be too coarse for the assumptions underlying most trade models. We discuss the implications of unaccounted-for product heterogeneity for previous Heckscher-Ohlin estimations as well as its potential relevance for the trade and wages debate.