The Rybczynski Theorem, Factor-Price Equalization, and Immigration: Evidence from U.S. States

Abstract

Recent literature on the labor-market effects of U.S. immigration tends to find little correlation between regional immigrant inflows and changes in relative regional wages. In this paper we examine whether immigration, or endowment shocks more generally, altered U.S. regional output mixes as predicted by the Rybczynski Theorem of Heckscher-Ohl in (HO) trade theory. This theorem describes how regions can absorb endowment shocks via changes in output mix without any changes in relative regional factor prices. Treating U.S. states as HO regions, we search for evidence of regional output-mix effects using a new data set that combines state endowments, outputs, and employment in 1980 and 1990. We have two main findings. First, state output-mix changes broadly match state endowment changes. Second, variation in state unit factor requirements is consistent with relative factor-price equalization (FPE) across states, which is a sufficient condition for our output-mix hypothesis to hold. Overall, these findings suggest that states absorb regional endowment shocks through mechanisms other than changes in relative regional factor prices.