Factors influencing United States comparative advantage

Abstract

One of the more famous results in international trade is Leontief's demonstration that the conventional wisdom of trade theory—the two-factor Heckscher-Ohlin model, coupled with the empirical judgement that the U.S. is capital-rich—does not appear to provide an explanation of the composition of U.S. trade. A major conclusion of many recent studies is that an adequate model of comparative advantage will be, of necessity, a multi-factor one. This paper examines the implications of a modified multi-factor-proportions model by measuring the simultaneous impact of a variety of factor intensities on the comparative advantage of all U.S. (trading) industries, classified and disaggregated by the 1958 input-output table. The novelty of the study lies in using a binary measure of comparative advantage. In order to by-pass several econometric difficulties, logit analysis is used to estimate the model. The principal conclusion of the paper is that capital-intensity has a significantly positive impact on the comparative advantage of U.S. manufacturing industries and, therefore, that the U.S. is, in fact, relatively capital-rich.