Testing Heckscher— Ohlin—Vanek Model Using Spanish Regional Data

Abstract

The authors conduct an empirical study of the Heckscher—Ohlin—Vanek (HOV) model of trade using regional data rather than country data. Findings for Spanish regions suggest that relaxing the assumption of world factor price equalization alone is not enough to improve the performance of the HOV model. The supposition of world identical and homothetic preferences must also be relaxed. The authors also test whether Spanish regions share the same production techniques. Allowing for productivity-adjusted factor price equalization across regions or region-specific input—output matrices contributes very little toward improving the HOV model's predictive power, suggesting that the state of technology and choice of techniques is similar across Spanish regions.