Why does HOV fail?: The role of technological differences within the EC

Abstract

This paper examines the role of international differences in production techniques in explaining the empirical failure of the Heckscher–Ohlin–Vanek (HOV) model. It develops a modified HOV model that relaxes the assumption of identical production techniques across countries and can be estimated using input–output data of individual countries. The contribution of international differences in techniques to net factor trade patterns is then isolated by comparing the performance of the strict and modified HOV models. The paper finds that allowing for international technique differences significantly improves the predictive power of the HOV model.