Japan-U.S.trade and Heckscher-Ohlin-Vanek theorem

Abstract

In this paper, the Heckscher-Ohlin-Vanek (HOV) theorem is empirically investigated in the Japan-U. S. trade. The HOV theorem for bilateral trade and a method of decomposition analysis are presented and applied to the Japan-U. S. trade data. The results are as follows:1. The HOV theorem performs relatively well in predicting the direction of trade. However, it fails to predict the volume of trade.2. This failure of prediction is caused mainly because the assumption of the production side is not fulfilled. In other words, the factor intensities of industries are different between Japan and U. S.3. The huge difference in the land endowment between the two countries hinders the factor price equalization and causes the difference in land intensities. For other factors such as capital and labor, the reason for the factor intensity differences are yet to be found.