Differences In Factor Endowments Research Articles

Intra‐industry Trade and Industry Distribution of Productivity: A Cournot–Ricardo Approach

AbstractThis study constructs a general equilibrium model of trade by incorporating Cournot competition in a Ricardian model of trade with a continuum of goods. In this model, the share of intra‐industry trade (IIT) in bilateral trade volume decreases as trading partners become more different in terms of the industry distribution of labour productivity. We show that this relationship is a special case of a general accounting identity: the intensity of IIT is decreasing in a specialisation index. The specialisation index is equal to the difference in the industry distribution of labour productivity in our Cournot–Ricardo model, while it is equal to the difference in factor endowments in the well‐known monopolistic competition model. As both technologies and factor endowments would play important roles in shaping specialisation patterns, we conjecture that the share of IIT is decreasing in both measures of specialisation. Using the data from Nicita and Olarreaga, we test this conjecture. Our pooled ordinary least squares (OLS) estimations strongly support this conjecture. However, in fixed‐effect panel estimations, only the industry distribution of productivity is significant in the entire sample. Subdividing the sample, we find that the difference in the industry distribution of productivity is significant in explaining North–North IIT, while the difference in factor endowments is significant in explaining North–South IIT.

Technology, factor endowments, and China's agricultural foreign trade: a neoclassical approach

PurposeThe purpose of this paper is to explain the determination of China's agricultural foreign trade pattern since the World Trade Organization (WTO) accession.Design/methodology/approachThe neoclassical trade theory indicates that differences in both technology levels and factor endowments can explain the international trade pattern. In terms of a neoclassical framework based on the restricted profit function, this paper employs the province‐level panel data to investigate whether China's agricultural foreign trade pattern is consistent with the neoclassical explanation.FindingsThe findings indicate that China's agricultural foreign trade pattern is evidently characterized by regional specific features. In the eastern region, agricultural foreign trade pattern is jointly determined by differences in technology levels and factor endowments. Agricultural foreign trade patterns are driven in the central and western regions by land and capital endowments, respectively. The findings also imply that the utilization of comparative advantage in China's agriculture needs to be exploited further.Originality/valueAs far as the author knows, this paper is the first to apply the neoclassical framework based on the restricted profit function and employ the province‐level panel data to investigate the determination of China's agricultural foreign trade pattern.

Phases of Economic Development: Do Initial Endowments Matter?

Different industrializing experiences beginning on innovation or education could be explained not only by different structural parameters or policies but also by differences in factor endowments. In this paper, we consider an endogenous growth model with physical capital, human capital and RD in particular, whether innovation precedes education or vice versa.

Marginal intra-industry trade and adjustment costs: the case study of Iran s manufacturing industries

According to smooth adjustment hypothesis (SAH), intra-industry trade (IIT) has low adjustment cost compared with inter-industry trade. The purpose of this paper is to examine the hypothesis by using panel technique for Iran’s manufacturing industries during 2002–2006. Comparing with other empirical studies, this paper has used marginal horizontal and vertical IIT as well as marginal intra-industry trade (MIIT) to test SAH. The obtained results do not support the mentioned hypothesis for MIIT. On the other hand, by distinguishing MIIT to marginal horizontal and vertical IIT, this hypothesis is confirmed for the former. This result is justifiable since marginal horizontal IIT is a change of IIT with similar factor intensity, whereas marginal vertical IIT is mainly based on differences in factor endowment.

The factor content of Chinese trade

This article demonstrates that the growth of China's exports in recent years is consistent with the Heckscher–Ohlin–Vanek (HOV) prediction of the factor content of trade based on international differences in factor endowments, after adjusting for substantial differences in factor-specific productivity. A comparison of the Organisation for Economic Co-Operation and Development input–output data in the year 2000 shows that China's labor productivity relative to the United States is the lowest in a sample of 33 diverse countries, although China's capital is more productive than US capital. This in turn demonstrates the importance of a factor-specific rather than factor-neutral productivity adjustment common in much of the HOV literature. The use of value-added data to measure factor usage helps to correct for unobserved differences in factor qualities and differences in productivity across sectors, as is demonstrated for China. China's low average labor productivity reflects the structure of the Chinese economy where most employment is still in the inefficient agriculture and service sectors, with only 11% of employment in the more modern export-oriented manufacturing sector. Due to a trade surplus, China exports both labor and capital but Leamer's (The Journal of Political Economy 1980;88: 495–503) test for trade-revealed factor abundance confirms that China is labor abundant even after substantial factor-specific productivity adjustments.

Modelling the factor content of agricultural trade

This article examines the factor content of agricultural trade in the Central and East European (CEE) transition countries. It relates the factor content of agricultural trade to the cross-country differences in technology stemming from different farm organisations between the CEE countries agricultural sectors and to the differences in relative factor endowments. The relative factor endowments alone do not satisfactorily explain agricultural trade flows in the CEE countries. We find that transaction costs and market imperfections that affect the organisation of production also distort farm specialisation and hence V the actor content of agricultural trade.

Is natural openness or trade policy good for the environment?

AbstractIn this paper, we estimate the individual effects of natural openness and trade policy on air pollution. Natural openness is the component of the trade share (imports and exports as a percentage of GDP) attributable to population, geography and factor endowment differences. We find that natural openness reduces air pollution, while trade policy has a limited impact. The implication is that ‘natural’ geographic and endowment differences play a more important role than deliberate trade policy decisions in explaining the trade and environment link.

INTERNATIONAL TRADE IN MINING PRODUCTS

Abstract The increase in mineral price volatility since 1970 and worries about the impact of rapidly growing mineral exports on the economic growth of developing countries have created recent interest in mineral trade flows and policies. This paper provides a review of current thinking on the economics of international trade in mining products. Despite mining products’ importance in early formulations of trade theory, there have been relatively few studies that have specifically examined mining product trade flows. The limited evidence that exists supports the idea that factor endowment differences explain much mining product trade. There is some apparent South–South and intra‐industry trade in mining products, but we find no need to resort to the ‘new trade theory’ to explain this. Given worries of substandard growth and development in mining‐based economies, trade policies have been used to try to accelerate the movement towards resource‐based manufacturing. In the light of recent evidence that mining product exporters have not suffered in the long‐run from mining activity, these policies are likely to have been unwarranted. Nevertheless, there is some evidence that the more closed mining economies have had faster growth than the open mining economies, reflecting correction of a political economy trap that causes open mining economies to under‐invest in education.

Technology and endowments as determinants of comparative advantage: Evidence from Mexico

We analyze whether the pattern of Mexico's comparative advantages in manufacturing trade flows, vis-à-vis its closest competitors, are related with productivity differentials (Ricardian hypothesis) or with differences in factor endowments (Heckscher–Ohlin hypothesis). The results suggest that Heckscher–Ohlin determinants tend to be more relevant than labor productivity differentials to explain the differences in the export patterns between Mexico and its competitors. This result holds even when we restrict the analysis to Mexico and other countries with relatively small differences in factor endowments, although in this case Ricardian comparative advantages gain some relevance.

Gains from trade and measured total factor productivity

We develop and calibrate a model where differences in factor endowments lead countries to trade different goods, so that the existence of international trade changes the sectorial composition of output from one country to another. Gains from trade reflect in total factor productivity. We perform a development decomposition, to assess the impact of trade — and barriers to trade — on measured TFP. In our sample, the median size of that effect is about 6.5% of output, with a mean of 17% and a maximum of 89%. Also, the model predicts that changes in the terms of trade cause a change of productivity, and that effect has an average elasticity of 0.73.

Vertical Intra‐industry Trade and Fragmentation: An Empirical Examination of the US Auto‐parts Industry

AbstractThe global auto industry has undergone a significant structural transformation in the last two decades as a result of the international fragmentation of production. This increase in cross‐border production‐sharing activities in the auto industry led to intra‐industry trade (IIT) in auto‐parts. In this study, the extent of IIT in the US auto‐parts industry is examined by decomposing trade into inter‐industry trade, vertical IIT and horizontal IIT. Then the development of vertical IIT is analysed as an indicator of international fragmentation between the US and 29 trading partners. Several country‐specific hypotheses suggested by the fragmentation literature are tested for the period 1989–2006. The results indicate that a substantial portion of IIT in the US auto‐parts industry is vertical IIT, and the econometric results generally support the hypotheses drawn from the theory. In particular, the findings show that the extent of the US vertical IIT is positively correlated with average market size, differences in market size, differences in factor endowments and outward foreign direct investment, while it is negatively correlated with distance and differences in per capita GDP.

Structural Development Accounting

We construct and estimate a unified model combining three of the main sources of cross-country income disparities: differences in factor endowments, barriers to technology adoption and the inappropriateness of frontier technologies to local conditions. The key components are different types of workers, distortions to capital accumulation, directed technical change, costly adoption and spillovers from the world technology frontier. Despite its parsimonious parametrization, our empirical model provides a good fit of GDP data for up to 86 countries in 1970 and 122 countries in 2000. Removing barriers to technology adoption would increase the output per worker of the average non-OECD country relative to the US from 0.19 to 0.61, while increasing skill premia in all countries. Removing barriers to trade in goods amplifies income disparities, induces skill-biased technology adoption and increases skill premia in the majority of countries. These results are reverted if trade liberalization is coupled with international IPR protection.

Determinants of Mexico’s Comparative Advantages and of the Performance of its Manufacturing Exports During 1996-2005

We analyze if the pattern of comparative advantages and the recent behavior of Mexican manufacturing exports, vis-`a-vis its closest competitors, are related with productivity differentials or with differences in factor endowments. The relative abundance of relatively unskilled labor in Mexico locates this country in markets where other large countries with similar factor endowments, such as China, have entered rapidly. In comparison with China and other similar competitors, the most important determinant of Mexico’s comparative advantages and export performance seems to be productivity differentials. When Mexico is compared against other relevant competitors that have been able to rise faster in the value chain, Mexican export performance also seems to reflect its relatively small endowment of human capital.

Unravelling the worldwide pollution haven effect

This paper tackles the ‘pollution haven’ argument by estimating the pollution content of imports (PCI). The PCI is then decomposed into three components: (i) a ‘deep’ component (i.e. traditional variables unrelated to the environmental debate); (ii) a factor endowment component and (iii) a ‘pollution haven’ component reflecting the impact of differences in environmental policies. The estimation is carried out for 1987 for an extensive data set covering 10 pollutants, 48 countries and 79 ISIC four-digit sectors. Decompositions based on cross-section econometric estimates suggest a significant pollution haven effect, which increases the PCI of the North because of stricter environmental regulations in the North. At the same time, the factor endowment effect lowers the PCI of the North, as the North is relatively well-endowed in capital and pollution-intensive activities are capital intensive. On a global scale, because the bulk of trade is intra-regional with a high North-North share, these effects are small relative to the ‘deep’ determinants of the worldwide PCI. Robustness checks performed on a more recent dataset, but limited to sulphur dioxide, confirm these results. In sum, differences in factor endowments and environmental policies only marginally affected the PCI of world trade at the end of the 1980s.

Two‐Way Outsourcing, International Migration, and Wage Inequality

This article develops a general equilibrium model with a vertical production structure to examine the relationship between offshore outsourcing and international migration, especially emphasizing their effects on the wages of skilled and unskilled workers. Two‐way outsourcing (simultaneous insourcing and outsourcing) in skilled‐labor–intensive services arises because of product differentiation and scale economies, and outsourcing in unskilled‐labor–intensive processing occurs because of factor endowment differences. The tractability of the model allows us to rank outsourcing and migration, according to the wages of both types of workers. Finally, we also analyze under what conditions outsourcing and international migration are complements or substitutes.

China, India and the Commodity Boom: Economic and Environmental Implications for Low-income Countries

The international role of China has risen steadily for two decades – and has become even more important in the current global recession. The growing supply of labour-intensive manufactured exports from China has been accompanied by a huge expansion in its imports both of raw materials and of skill-intensive manufactured parts and components. This ‘offshoring’ of intermediates production by a large, labour-abundant economy has economic and environmental implications for other developing economies. More recently, the rapid expansion of the Indian economy and trade indicates that it too will soon exert similar effects on global markets. We sketch a model showing how the growth of these developing-country ‘giants’ generates adjustment pressures on other developing economies. We discuss in particular how differences in relative factor endowments of resource-rich economies can produce quite different outcomes in the context of product fragmentation and expanding commodity trade. We also explore the effects on production, trade, environment and prospects for future growth in resource-rich economies, particularly in the context of weak institutions and other market failures. We illustrate these different impacts by considering the cases of Indonesia, Malaysia and Thailand and highlight implications for growth, development and policy.

Relative Endowments and the Volume of Trade

This paper provides evidence that the volume of trade may increase as countries’ relative endowments become more similar. A model is developed that can explain this phenomenon. The model is a four-good version of the Davis (1995) Heckscher-Ohlin-Ricardo model of international trade based on technological and factor endowment differences across countries. In the model, trade volumes may increase with greater similarity in relative endowments, because productivity differences across countries mean that countries’ production becomes increasingly specialised the more similar are their relative endowments.

Driving forces of vertical intra-industry trade in Europe 1996–2005

A common feature in the empirical literature of intra-industry trade is the analysis of trade between a given reference country and a set of partners. This article differs from previous studies by examining the bilateral trade among all trading partners within a set of partners. Using a panel data approach, we find that differences in factor endowments seem not to be important as a driving force behind vertical intra-industry trade for European countries over the chosen period. More important driving forces are production size, geographical proximity, average income per capita and income distribution overlap.

THE EFFECTS OF TRADE WITH DEVELOPING COUNTRIES ON THE REGIONAL DEMAND FOR SKILL IN THE U.S.: EVIDENCE FROM COUNTY DATA*

ABSTRACT Using county‐level data from the 1980s and 1990s and a county‐level trade measure that incorporates the county's industrial mix and patterns of international trade across industries, I provide new evidence that trade with developing countries raises the demand for skill and the skill premium in the U.S. Consistent with Heckscher–Ohlin, I find that trade driven by differences in factor endowments has an economically significant impact on local labor markets. The evidence suggests that when trade with developing countries rises, counties with higher skill endowment and greater employment in industries with larger trade shares experience greater relative demand for high‐skilled labor.

O viés doméstico no comércio interestadual de produtos florestais no Brasil

Este estudo procurou estimar o efeito doméstico do comércio entre os estados brasileiros, utilizando-se dados sobre as atividades do setor florestal de acordo com a classificação nacional de atividades econômicas fiscais (CNAE-F). Para tanto, fez-se uso de um modelo geral de gravidade, que leva em consideração os efeitos das vantagens comparativas advindos das diferentes dotações de fatores. Os resultados indicaram que o tamanho do mercado tem efeito positivo na razão exportações/importações, com exceção da atividade de silvicultura. O efeito doméstico é maior nas atividades com maior intensidade de capital, apesar de variar entre as diferentes indústrias. A atividade de fabricação de produtos de madeira mostrou-se mão-de-obra intensiva. Os coeficientes estimados permitiram classificar as atividades do setor florestal no Brasil, de maneira geral, como intensivas em capital e produzindo bens de necessidade.