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Copyright of Canadian Journal of Economics is the property of Wiley-Blackwell and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

This paper generalizes Miller's supply-side equilibrium argument to other forms of capital market imperfections and incompleteness. If corporations possess a comparative advantage in dealing with these imperfections, they have an incentive to act as financial intermediaries. Corporations' attempts to profit from these intermediation activities dictate an optimal capital structure for the corporate sector as a whole, but in equilibrium the capital structure of any single firm is a matter of indifference. In addition, the positive role that corporate finance plays in completing the market restores standard perfect market results on asset pricing and the associated portfolio separation properties. [ABSTRACT FROM AUTHOR]

The purpose of this study is to analyse the role of preferences and technological differences between countries in determining dynamics of capital accumulation, wealth and income distribution within countries and between countries, and patterns of trade in a dynamic general equilibrium framework. The model is built by integrating Walrasian general equilibrium, neoclassical growth, and H-O international trade theories. The model is built for any number of countries and each country is composed of three production sectors and heterogeneous households. The national growth mechanism is the same as that in neoclassical growth theory. Labour and capital distributions among sectors and among countries are determined under perfect competition and free trade. The model synthesizes the well-known H-O and the Oniki-Uzawa trade models, Solow-Uzawa neoclassical growth theory, and Walrasian general equilibrium theory with Zhang's utility function. We simulated the model with three national economies and with two groups of households for each country. We identified the existence of equilibrium points and plot motion of the dynamic system. We also conducted a comparative dynamic analysis. [ABSTRACT FROM AUTHOR]

We investigate migration and foreign direct investment (FDI) for a small trading economy. Historically, immigration in small countries has been accompanied by FDI inflows (complementary capital movements). Based on the skill composition of migrants, empirical evidence finds that skilled immigration is accompanied by FDI inflows but unskilled immigration is accompanied by FDI outflows (substitutable capital movements). We prove that the Heckscher-Ohlin model cannot reconcile these apparently contradictory observations. We introduce a theoretical model in which capital and unskilled labor are sector specific, and demonstrate that this model can reconcile the historical and empirical observations on migration and FDI. [ABSTRACT FROM AUTHOR]

We analyze the medium- and long-run effects caused by an inflow of capital into a labor-abundant country. For that purpose, we incorporate directed technical change into a Heckscher-Ohlin model with a continuum of goods. This provides a comprehensive theory explaining the dynamics of comparative advantage based on differences in effective factor endowments, i.e. factor endowments adjusted by differences in technological levels. Our model constitutes an appropriate framework for understanding, e.g., the empirically observed changes in industrial structures of Central and Eastern European countries. Furthermore, we provide a theoretical foundation for the empirical Prospective Comparative Advantage index with new insights into the future dynamics of comparative advantage. Eventually, we show the importance of research spillovers and state dependence on the process of convergence. [ABSTRACT FROM AUTHOR]

The practice of using Revealed Comparative Advantage (RCA) Indices to determine the flow of goods trade among countries is well established. But an important issue that demands attention is whether the RCA indices reflect the essentials of comparative advantage theory. Deb and Basu Foreign Trade Rev 46(3):3-28, (2011) examined the consistency of alternative RCA indices with the Heckscher-Ohlin theory of comparative advantage, leaving scope for re-examination of the indices in the context of the Ricardian comparative advantage theory, which insists on relative factor productivity differences among countries contrary to Heckscher-Ohlin's relative factor endowment differences. The other issue which has been overlooked in much of the existing literature is the importance of value-added trade. With the growing importance of global production chains, RCA indices based on gross export values may not portray an accurate picture of the underlying comparative advantage of countries. In this context, adjusting the RCA indices to incorporate domestic value-added in exports seems to be quite relevant. This paper explores the consistency of RCA indices based on domestic value-added in exports with the Ricardian theory of comparative advantage using a panel data approach. A brief review on the structures of alternative RCA indices is also provided. The Log-of-Balassa index is found to be the best performer in this empirical examination, although the deficiencies of the index for cross-country or cross-commodity comparison must be acknowledged. The index of Yu et al. Ann Reg Sci 43(1):267-282, (2009) does possess the latter feature but in our study its performance is quite poor and hence its consistency with the Ricardian theory of comparative advantage is questionable. [ABSTRACT FROM AUTHOR]

The Heckscher-Ohlin model based on Ricardo's theory of comparative advantage maintains that countries should specialize in the production and exportation of products that they have relative factor endowments. Therefore, Nigeria has taken advantage of its favourable climatic condition to become among the largest producers and exporters of cocoa products in the world. Given that cocoa is also the topmost non-oil export product and earnings in Nigeria, this paper assesses its performance and determines the effects of external factors on production in the country. Nigeria's performance in the global cocoa market has been somewhat below expectations. Using OLS and Granger causality, the OLS regression results reveal that exports, trade openness, area harvested and domestic consumption have a positive influence on cocoa production in Nigeria. The Granger test shows that there exists bidirectional causality between the world price, trade openness and yield per hectare to cocoa production in the country. The results further confirmed a unidirectional causality running from cocoa output to exports. The government of Nigeria and trading partners should create a sound environment and some incentives to stimulate cocoa producers and exporters to increase production for export performance and revenue generation in the country. [ABSTRACT FROM AUTHOR]

We study, both theoretically and empirically, how trade imbalances affect the structure of countries' exports and wage inequality. We show that, in a Heckscher-Ohlin model with a continuum of goods, a Southern (Northern) trade surplus leads to an increase (reduction) in the average skill intensity of exports, in the relative demand for skills and in the skill premium in both countries. We provide robust support for the mechanism underlying these predictions using a large panel of countries observed over the past 30 years. Our results suggest that the large and growing North-South trade imbalances arisen over the last three decades may have exacerbated wage inequality worldwide. [ABSTRACT FROM AUTHOR]

In partial equilibrium, a reduction in import barriers may be thought to lead to an increase in imports and a reduction in trade surplus. However, the general equilibrium e¤ect can go in the opposite direction. We study how trade reforms affect current accounts by embedding a modifed Heckscher-Ohlin structure and an endogenous discount factor into an intertemporal model of current account. We show that trade liberalizations in a developing country would generally lead to capital outflow. In contrast, trade liberalizations in a developed country would result in capital inflow. Thus, effcient trade reforms can contribute to global current account imbalances, but these imbalances do not need policy "corrections". [ABSTRACT FROM AUTHOR]

India's engagement with West Asia including Iran has always been a balancing act hovering between economic necessities and strategic pursuits. The paper briefly traces the evolution of Indo-Iran engagements and also analyses their respective macroeconomic parameters. It also outlines and discusses three major geopolitical and geo-economic influences including sanctions on Iran, payment mechanism, and Iran's business environment. Moreover, the issues pertaining to access to oil, transit route through Afghanistan and other trade facilitation measures have also been discussed. The paper also uses the revealed comparative advantage index to identify some potential areas of cooperation. Also, it argues that India needs to be more cautious and pragmatic in its strategic endeavours. [ABSTRACT FROM AUTHOR]

In 2004 and 2007, twelve New Member States (NMS) joined the European Union (EU), causing several changes in the field of agriculture. One of the major changes was the transformation of the national agri-food trade. The aim of the paper is to analyse the effects of the EU accession on the NMS agri-food trade, especially considering the revealed comparative advantages. The results suggest that the intensity of the NMS agri-food trade has increased significantly after the accession, though there was a serious deterioration in the NMS agri-food trade balance in most cases. It has also become evident that the NMS agri-food trade was highly concentrated by country and by product, though the concentration has not changed significantly after the EU accession. Moreover, our analyses highlight one of the most important characteristics of the NMS agri-food trade structure -- the focus on the agri-food raw materials in export together with the agri-food processed products in import. As to the NMS agri-food trade specialisation, the diversity among member states becomes apparent. Almost all countries experienced a decrease in their comparative advantage after the accession, though it still remained at an acceptable level in most cases. As for the stability of the comparative advantage, the results suggest a weakening trend, underpinned by the convergence of the pattern of revealed comparative advantage. By estimating the survival function to the sample, it can be observed that the accession has radically changed the survival time of agri-food trade, meaning that the revealed comparative advantage has not turned out to be persistent in the period analysed. From the policy perspective, there is a clear need for structural changes in the NMS agriculture and agri-food sector in order to tackle the negative tendencies of the national agri-food trade. The most important long-term goal should be the production and export of higher value-added processed products based on domestic raw materials. [ABSTRACT FROM AUTHOR]

The study analyzes the trends in the Indian poultry products' exports during the pre- and the post-WTO periods using the Hodrick-Prescott (HP) filtered data. The Simpson Diversity Index (SDI) was used to measure the export diversity, whereas the Revealed Comparative Advantage (RCA) and the Revealed Symmetric Comparative Advantage (RSCA) ratios assessed the competitiveness of poultry products in the international market. India has been highly competitive in the exports of hen-eggs-in-shell and eggs-dried, whereas India needs to maintain its competitive position with respect to eggs-liquid and live-ducks. India could not retain its competitive position in live chicken exports due to the rising production cost coupled with the onslaught of the Avian Influenza (AI) in the recent years. Spreading of the AI put a heavy toll on poultry exports, especially chicken meat and eggs-liquid due to a complete ban on Indian poultry products imposed by many of the importing countries. The SDI indicated that poultry products' exports were more diversified during the post-WTO period. On the basis of the available data on the average ad-valorem applied duties faced by the Most Favoured Nations (MFN), the producers' price in various countries for chicken meat and eggs (hen-egg-in shell) and shipping charges from India to various countries, the lucrative export destinations for such poultry products were identified. [ABSTRACT FROM AUTHOR]

This paper empirically investigates the relative importance of productivity, factor endowments, trade costs, and tastes in determining the current pattern of trade and specialization. The results show that productivity and taste differences are the first and second most significant determinants of trade and specialization. Factor endowments are the least influential for the average country in the data set, but their effects are much greater in the poorer than richer countries. The results also show the substantial role of trade costs, which is amplified through interactions with other determinants of trade. Trade costs affect the relative costs of intermediate inputs and final goods, link preferences with specialization, and reduce the geographical range of comparative advantages. [ABSTRACT FROM AUTHOR]

The business of this study is to investigate the role of openness in bank efficiency with respect to income levels. From a panel of 29 low and middle income African countries with data spanning from 1987 to 2008, we provide evidence that, openness (trade and financial) breeds less bank efficiency in low income countries. As for middle income countries, while financial openness has the same effect, results for trade openness are not significant. These findings justify the absence of a banking comparative advantage and consequently, the issue of over-liquidity resulting from low funding of credits by deposits. For policy implications, openness will increase the economic cost of banks in sampled countries. However, trade openness will be more detrimental than financial openness. More so, banks in middle income countries play a greater role in financing activities resulting from trade openness than those in low income countries. [ABSTRACT FROM AUTHOR]

Is skill dispersion a source of comparative advantage? In this paper we use microdata from the International Adult Literacy Survey to show that the effect of skill dispersion on trade flows is quantitatively similar to that of the aggregate endowment of human capital. In particular we investigate, and find support for, the hypothesis that countries with a more dispersed skill distribution specialize in industries characterized by lower complementarity of workers' skills. The result is robust to the introduction of controls for alternative sources of comparative advantage, as well as to alternative measures of industry-level skill complementarity. ( JEL F14, F16, J24, J31) [ABSTRACT FROM AUTHOR]

We examine the effects of different aging speeds on international trade patterns in an open overlapping generations model. An expansion in life expectancy of a country does not necessarily make the country a net exporter of capital-intensive goods when fertility is endogenous, depending on the relative magnitudes of the positive Rybczynski effect of changes in the factor endowments and the negative effect from the consumption-savings choice on the relative price in the autarkic steady state. The incidence of gains from trade among generations after opening trade depends on whether the country becomes a net exporter or importer of capital-intensive goods. [ABSTRACT FROM AUTHOR]

In a two-country, two-factor world, each is assumed to choose a golden rule path, but these paths differ because of divergent growth rates for labor (in efficiency units). In order to maintain these, it becomes necessary to impose a tax on the return to foreign-owned capital equal to the difference between the lower foreign rate and the higher home rate of the capital-importing country. It is also necessary to prevent undercutting of this difference in capital returns via adjustment of domestic production, as in the HOLS theorem. This is done by means of a supporting tariff on trade. When foreign investment also involves the transfer of technology, the tax is accordingly reduced. It is also shown, using the calculus of variations, that if and only if social planners have a discount rate on future consumption of zero does the golden rule follow. [ABSTRACT FROM AUTHOR]

During the 19th century, the Spanish economy went through the early stages of the industrialisation process. This process developed in parallel to the growing market integration of goods and factors as a result of the liberal reforms and the construction of the railway network, with the subsequent fall in transport costs. In that period, there were major changes in the pattern of industrial location across Spain, with an increasing spatial concentration of industrial activities between the 1850s and the Spanish Civil War (1936-39) and a deeper regional specialisation. What were the forces behind these changes? On the theoretical side, the Heckscher-Ohlin model suggests that the spatial distribution of economic activity is determined by comparative advantage due to factor endowments. In turn, New Economic Geography models show the existence of a bell-shaped relationship between the process of market integration and the degree of concentration of industrial activity in the territory. This paper examines empirically the determinants of industrial location in Spain between 1856 and 1929 estimating a model that nests both Heckscher-Ohlin and NEG factors and tests the relative strength of these forces, since they are not mutually exclusive and might be at work simultaneously. The analysis of the results shows that both comparative advantage and NEG-type mechanisms were determinant drivers of industrial location in Spain, although their relative strength changed over time. [ABSTRACT FROM AUTHOR]

This paper investigates the determinants of intraindustry trade (IIT), horizontal IIT (HIIT), and Vertical IIT (VIIT) in the automobile industry in Portugal. The trade in this sector between Portugal and the European Union (EU-27) was examined, between 1995 and 2008, using a dynamic panel data. We apply the GMM system to solve the problems of serial correlation and the endogeneity of some explanatory variables. The findings are consistent with the literature. The difference between per capita incomes and factor endowments present a positive sign. These results are according to Heckscher-Ohlin predictions. The economic dimension has a positive impact on trade. A negative effect of the distance on bilateral trade was expected and the results confirm this, underlining the importance of neighbour partnerships for all trade. [ABSTRACT FROM AUTHOR]

The history of mankind is replete with the issue of conflicts and wars. War has been throughout history a normal way of conducting disputes between political groups and nations. It seems that no human activity can be actualized without an element of conflict since there have always been differences in preferences in beliefs, religion, policies and approach to fundamental issues affecting different individuals/nations. The fact that comparative advantage of materials and human resources are more in favour of certain groups than the others makes conflicts concurrently palpable in human relations. It is therefore absolutely impossible for any nation to maintain a policy of isolation without interaction with other nations; and the process of interaction leads to disagreements. It is in the course of inter-group relations that conflict erupts, especially where the rules binding such a relationship are not well defined and properly understood. Although, we sometimes attribute conflicts to heterogeneity of societies but we must also not forget the paradox that most disastrous conflicts of our time emanated from homogeneous societies such as the war we are witnessing in Somalia where the people have a common language, cultural affinities and historical heritage. The main thrust of this paper is to critically assess the concept of the new kind of war that is rampart in Africa. [ABSTRACT FROM AUTHOR]

This study was carried out to determine the contributors to value-addition in the processing of paddy rice into basic milled rice and value-added rice as well as analyze the comparative advantage and competitiveness of rice processing in Nigeria. The extent of policy distortion and agricultural protection was also determined by the study. The data were collected from Ebonyi State, Nigeria, a major rice processing state with 850 registered small-scale processors. Data from other secondary sources were also used. The main analytical framework used was the Policy Analysis Matrix (PAM). The policy distortions were measured through Nominal Protection Coefficient (NPC) and Effective Protection Coefficient (EPC). Private Profitability Coefficient (PPC) was used to measure the comparative advantage a processor has in producing value-added rice while the Domestic Resource Cost ratio (DRC) was selected as the measure of the comparative advantage Nigeria has in producing the commodity. The results show that the total value addition in the processing of paddy rice into basic milled rice was N20,000 or 20% of the output value while the total value addition in the processing of basic milled rice into value-added rice was about N21,500 or 17% of the output. The margin derivable from the processing of paddy rice into basic milled rice was N1,660 per tonne of basic milled rice while further processing of basic milled rice into valueadded rice yielded N7,667 as the margin per metric tonne of value-added rice. Financing, milling and margin are major contributors to value-additions. PAM results show that the price of value-added rice has been kept higher than the world price through policy interventions as the NPC for output was 1.74. Government policy has, therefore, provided incentives to processors of paddy rice into value-added rice. Farmers producing paddy rice also benefited from Government protection as captured by NPC for tradable inputs, which was 1.27; paddy rice being the main tradable input into rice processing operations Though it was profitable for a producer to process paddy rice into value-added rice given the policy environment, Nigeria has no comparative advantage in processing paddy rice into value-added rice, as the DRC was 4.88. [ABSTRACT FROM AUTHOR]

Recent empirical papers testing the performance of the Heckscher-Ohlin-Vanek (HOV) model suggest the need to relax its restrictive assumptions in order to reconcile the theory with the data. This paper examines whether introducing factor productivity differences could help to improve the performance of the HOV model in a regional setting. Using a new dataset of 17 Spanish regions and three different HOV specifications, this paper seeks the existence of Hicks-neutral (HN) or factor-augmenting industry-neutral (FAIN) technological differences. The data support the existence of HN technological differences, which contributes to a remarkable improvement of the regional HOV performance since the so-called missing trade problem largely disappears. Algunos artículos empíricos recientes evaluando el desempeño del modelo Heckscher-Ohlin-Vanek (HOV) sugieren la necesidad de relajar sus suposiciones restrictivas para poder conciliar la teoría con los datos. Este artículo examina si el introducir diferencias en la productividad de los factores podría ayudar a mejorar el desempeño del modelo HOV en un marco regional. Mediante la utilización de un nuevo conjunto de datos de 17 regiones españolas y tres especificaciones diferentes de HOV, este artículo busca la existencia de diferencias tecnológicas neutrales en el sentido de Hicks (HN) o de un aumento de factores neutral en cuanto a la industria (FAIN). Los datos apoyan la existencia de diferencias tecnológicas HN, que contribuyen a una mejora notable del desempeño HOV regional ya que en gran medida desaparece el problema del así llamado comercio desaparecido. [ABSTRACT FROM AUTHOR]

Using the Heckscher–Ohlin trade model, I refute two prominent but incorrect claims on virtual water trade. These claims are that virtual water trade (i) levels uneven water distribution, and (ii) reduces the potential for water conflict. Both claims are based on an incorrect understanding of comparative advantage in the production of water-intensive goods. The results show that both claims only hold under certain conditions, but do not necessarily follow from the Heckscher–Ohlin trade model. [Copyright &y& Elsevier]

This study, through bibliometric data, adopts the concept of Revealed Comparative Advantage (RCA) to apply in publication of scientific fields for observing the feature of scientific capacity of a nation. Following that, we utilize a hierarchical clustering method to conduct national clustering according to the RCA scores of publication in 24 scientific fields of each nation. A nation can thoroughly review its relative position, identify other nations with the same characteristics, and understand different clusters' features of scientific capacity. The result also provides a reference that enables researchers to review, explore, and learn about the factors behind the innovation system in the representative clusters or nations. By leveraging the clustering result, this knowledge also allows the nation to grasp opportunities to create innovation by cooperating with other nations that have different comparative advantages. As a result, by accumulating innovation capacity in these research network collaborations, the nation can maintain its innovation momentum and then forge into the innovation lead constantly. [ABSTRACT FROM AUTHOR]

We study a two-country endogenous growth model in which the long-run growth is propelled by the accumulation of physical and human capital. We show that in the integrated world economy, there exists a unique and locally saddlepoint stable balanced growth equilibrium. We also show that the incorporation of adjustment costs in the process of human capital accumulation leads to a lower long-run growth rate. We then show that, in the 2-country world economy with international trade, balanced growth is possible. Finally, we present a dynamic Heckscher–Ohlin theorem concerning the pattern of international trade. [ABSTRACT FROM AUTHOR]

I propose a framework that takes a set of conceivable outcomes as the primitive and a prediction is defined by identifying a subset on the set of conceivable outcomes. This notion of predictability serves as an organizing principle for characterizing pattern of trade predictions in single economy and integrated equilibrium formulations of the neoclassical trade model. I identify allocative efficiency as the unifying subset selection criterion for the different formulations of the neoclassical trade model, ranging from Ricardo’s (in Principles of Political Economy and Taxation, reprinted by J. M. Dent, London, in Everyman’s library, 1817) original comparative advantage formulation to the multi-cone Heckscher–Ohlin specification with multiple countries, goods and factors. [ABSTRACT FROM AUTHOR]

The classical Heckscher-Ohlin-Mundell paradigm states that trade and capital mobility are substitutes in the sense that trade integration reduces the incentives for capital to flow to capital-scarce countries. In this paper we show that in a world with heterogeneous financial development, a very different conclusion emerges. In particular, in less financially developed economies (South), trade and capital mobility are complements in the sense that trade integration increases the return to capital and thus the incentives for capital to flow to South. This interaction implies that deepening trade integration in South raises net capital inflows (or reduces net capital outflows). It also implies that, at the global level, protectionism may backfire if the goal is to rebalance capital flows. [ABSTRACT FROM AUTHOR]

An empirical tradition in international trade seeks to establish whether the predictions of factor abundance theory match with the data. In this paper, we test if the "new" determinants used in the factor content version of H-O-V models (differences in productivity, in returns to scale or in consumers' preferences) help us to improve our estimation of trade patterns in commodities. The results show that conventional factors are still important in determining trade structure although new determinants need to be included to determine comparative advantage. Turning to the change across periods, differences in factor endowments have not diminished over time: we observe an increase in specialization according to skill endowment. Hence, those "new" determinants are not new forces that drive trade flows. [ABSTRACT FROM AUTHOR]

The advent of the U.S. Interstate Highway System provides an interesting experiment, which I use to identify the labor market effects of reduced trade barriers. This highway network was designed to connect cities and border crossings and to serve national defense, and as an unintended consequence it crossed many rural counties. I find that these counties experienced an increase in trade-related activities, such as trucking and retail sales. By increasing trade, the highways raised the relative demand for skilled manufacturing workers in skill-abundant counties and reduced it elsewhere, consistent with the predictions of the Heckscher-Ohlin model. [ABSTRACT FROM AUTHOR]

We describe the evolving pattern of European countries' trade using recently developed empirical procedures based on the classic Balassa index. The extent of trade specialization exhibits a declining trend; European countries have lost their comparative advantage in a number of product groups over time. The indices of specialization have also tended to converge. For particular product groups, the indices display greater variation. They are stable for product groups with comparative disadvantage, but product groups with weak-to-strong comparative advantage show significant variation over time. The results reinforce the finding of a general decrease in specialization but do not support the idea of self-reinforcing mechanisms, strongly emphasized in much of the endogenous growth and trade literature. [ABSTRACT FROM AUTHOR]

The authors show how the transformation loci in the specific factors model (capital specificity) and the Heckscher-Ohlin-Samuelson model (capital mobility) can be rigorously derived and easily compared by using geometric techniques on the basis of Savosnick geometry. The approach shows directly that the transformation locus with capital specificity has a greater degree of curvature than with capital mobility, given the same technology, and that the latter is an envelope of the former. It can also be used to show how incentives in the short run would lead to the long-run capital reallocation implied by the assumption of capital mobility. [ABSTRACT FROM AUTHOR]

A two-country model of oligopoly in general equilibrium is used to show how changes in market structure accompany the process of trade and capital-market liberalization. The model predicts that bilateral mergers in which low-cost firms buy out higher-cost foreign rivals are profitable under Cournot competition. As a result, trade liberalization can trigger international merger waves, in the process encouraging countries to specialize and trade more in accordance with comparative advantage. With symmetric countries, welfare is likely to rise, though the distribution of income always shifts towards profits. [ABSTRACT FROM AUTHOR]

This paper analyzes trade balances and unit values in Hungarian and Slovenian bilateral agricultural, food, and forestry trade with Austria, Germany, and Italy, respectively, to distinguish types of one-way and two-way trade flows, categories of price competition, and categories of quality competition. Two-way trade flows prevail among trade types. In two-way bilateral trade, categories of price competition prevail over categories of nonprice competition, but vary across trading partners. In Hungarian trade, successful price and quality competition prevail, suggesting comparative advantages for Hungarian produce arising from available agricultural factor endowments and technological improvements in processing compared with bilateral EU trading partners. In Slovenian two-way trade, unsuccessful price and quality competition prevail, suggesting comparative trade disadvantages arising from agricultural and structural disadvantages compared with bilateral EU trading partners. Looking dynamically, we find no significant catch-up in successful competition, as for Hungary, both successful price and successful nonprice competition increased only for Austria, but deteriorated for Germany and Italy. For Slovenia, successful price and nonprice competition remain at a similar level as Austria, but decline compared with Germany and Italy. The probability of remaining one-way trade is greater than the probability of staying within the same competition category in two-way trade. There are differences across countries and over individual years, but the mobility indices indicate decline in trade flow mobility, and thus, more stable trade patterns over time. [ABSTRACT FROM AUTHOR]

We develop a tractable framework for the analysis of the relationship between contractual incompleteness, technological complementarities, and technology adoption. In our model, a firm chooses its technology and investment levels in contractible activities by suppliers of intermediate inputs. Suppliers then choose investments in noncontractible activities, anticipating payoffs from an ex post bargaining game. We show that greater contractual incompleteness leads to the adoption of less advanced technologies, and that the impact of contractual incompleteness is more pronounced when there is greater complementary among the intermediate inputs. We study a number of applications of the main framework and show that the mechanism proposed in the paper can generate sizable productivity differences across countries with different contracting institutions, and that differences in contracting institutions lead to endogenous comparative advantage differences. (JEL D86, O33) [ABSTRACT FROM AUTHOR]

Is a country's ability to enforce contracts an important determinant of comparative advantage? To answer this question, I construct a variable that measures, for each good, the proportion of its intermediate inputs that require relationship-specific investments. Combining this measure with data on trade flows and judicial quality, I find that countries with good contract enforcement specialize in the production of goods for which relationship-specific investments are most important. According to my estimates contract enforcement explains more of the pattern of trade than physical capital and skilled labor combined. [ABSTRACT FROM AUTHOR]

We study the macroeconomic effects of international trade policy by integrating a Hecksher–Ohlin trade model into an optimal-growth framework. The model predicts that a more open economy will have higher factor productivity. Furthermore, there is a “selective development trap” to which countries may or may not converge, depending on policy. Income at the development trap falls as trade barriers increase. Hence, cross-country differences in barriers to trade may help explain the dispersion of per capita income observed across countries. The effects are quantified, and we show that protectionism can explain a relevant fraction of TFP and long-run income differentials across countries. [ABSTRACT FROM AUTHOR]

Copyright of Canadian Journal of Economics is the property of Wiley-Blackwell and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

Applying Burgstaller's Ricardian two-sector growth model to the two-country open economy, this paper shows that the long-run Heckscher–Ohlin theorem holds also in a Ricardian world. In addition it is shown that, if two Ricardian countries that are different only in their demand parameters open trade, comparative advantage and the corresponding trade pattern at trade opening continue in the long run after the opening of trade. [ABSTRACT FROM AUTHOR]

Although the allure of consumption is the engine of globalization, political economists have tended to ignore varying consumer tastes as a potential source of beliefs about trade policy. This article develops a theory of trade policy preferences that adds the notion of varying consumer tastes to the standard labor-market application of the Heckscher-Ohlin trade model. The theory, which can explain trade preferences both across individuals and countries, is supported by an empirical analysis of survey data from 41 nations. Heavy consumers of exportables are found to be more protectionist than heavy consumers of imports and import-competing goods. Moreover, citizens in countries with expensive tradable goods see trade liberalization as a remedy to the rents they pay for protectionism. Other findings also support the more conventional labor-market side of the Heckscher-Ohlin model. [ABSTRACT FROM AUTHOR]

Empirical work on the Heckscher–Ohlin (H-O) theorem has been unable to reach consensus on its consistency with the data. In this paper we test the chain version of the H-O theorem empirically for the first time by using data on capital and labor endowments and capital/labor intensities by sector combined with export/import data for the United States. According to our findings, predictions of the theory are not confirmed by the data. However, when gross investment is used as a proxy for productive capital stock and capital/labor ratios are replaced by investment/labor ratios, we find almost perfect concordance between net trade flows and endowments as predicted by theory. [ABSTRACT FROM AUTHOR]

We propose a Neo-Heckscher–Ohlin (HO) model of trade that combines comparative endowment advantage, comparative technological advantage, international capital mobility and trade costs. Using an inframarginal approach, we produce a partition of the exogenous parameter space in a host of parameter value subsets that demarcate the various equilibrium patterns of production and trade. The results are startling! They suggest that production within the diversification cone – a key assumption of the Heckscher–Ohlin theory that is required for its core propositions (such as factor price equalisation) to hold – may only prevail on the razor's edge, or under exceptional circumstances. In addition, our findings nominate a mechanism by which improvements in transaction efficiency facilitate international trade thereby stimulating cross-country division of labour. Contrary to other generalisations of the Heckscher–Ohlin (such as the various derivatives of the Kemp–Jones model of trade), our model does not assume a purely Ricardian character: comparative endowment advantage may determine the pattern of trade even in the presence of opposing technological differences, as long as total factor productivity coefficients adjusted for transaction efficiency and factor intensity do not confer unambiguous comparative (technological) advantage. Still, ‘intensity-efficiency’-adjusted comparative technological advantage supersedes factor endowments in determining the flow of trade. [ABSTRACT FROM AUTHOR]

This paper examines how factor proportions determine the structure of commodity trade. It integrates a many-country version of a Heckscher-Ohlin model with a continuum of goods with Paul R. Krugman's (1980) model of monopolistic competition and transport costs. The commodity structure of production and bilateral trade is fully determined. Two main predictions emerge. Countries capture larger shares of world production and trade of commodities that more intensively use their abundant factors. Countries that rapidly accumulate a factor see their production and export structures systematically shift towards industries that intensively use that factor. Both predictions receive support from detailed trade data. [ABSTRACT FROM AUTHOR]

This paper analyses trends in different components of trade of transition countries. To explain the cross-country differences, the paper points out the important distinction between the determinants of inter-industry trade and intra-industry trade (IIT), and horizontal and vertical IIT. Using varieties of gravity models, it is shown that variables from Increasing Returns Trade Theory, such as scale economies, similarity of income levels, and number of varieties produced play important roles in IIT, especially in horizontal IIT, whereas factors such as comparative advantage, dissimilarity in income levels, and having more developed trade partners from Heckscher–Ohlin Trade Theory are crucial in determining inter-industry trade and vertical IIT to a lesser degree. [Copyright &y& Elsevier]

I develop a factor content of trade prediction for the Heckscher-Ohlin-Vanek model (HOV) that relates bilateral differences in country endowments to bilateral differences in factor contents. The results are striking. In comparisons of North-South factor contents or factor contents of countries with very different endowments (e.g., with very different capital-labor ratios), there is clear support for an HOV sign prediction. Thus countries with dissimilar endowment ratios also have very different factor content of trade differences as predicted by the HOV model. [ABSTRACT FROM AUTHOR]

This paper introduces a new technique for testing the Heckscher-Ohlin model that allows for the possibility that countries with sufficiently disparate endowments specialize in unique subsets of goods. Results based upon industry-level data reject one-size-fits-all homogeneity in favor of Heckscher-Ohlin specialization. Results also reveal that industry-level data hide substantial intra-industry heterogeneity, violating the assumptions of the model and complicating the interpretation of results from earlier research. A methodology for adjusting industry output to reflect underlying product variation is introduced. Reestimation of the model using adjusted aggregates in place of standard industry classifications provides strong support for Heckscher-Ohlin specialization. (JEL F11, F14, F2, C21) [ABSTRACT FROM AUTHOR]

We examine whether two important theories of trade, the Heckscher-Ohlin theory and the increasing returns theory, can account for the empirical success of the so-called gravity equation. Since versions of both theories can predict this equation, we tackle the model identification problem by conditioning bilateral trade relations on factor endowment differences and on the share of intraindustry trade. Only for large differences in factor endowments does the Heckscher-Ohlin model predict perfect production specialization in different countries as well as the gravity equation, and trade is purely in goods produced with different factor intensities. Our empirical analysis yields three findings. First, the predictions of the perfect specialization versions of both theories are rejected by the data and so are unlikely explanations for the empirical success of the gravity equation. Second, a model of imperfect specialization that includes both increasing returns and factor endowments as sources of trade has a mixed performance: it correctly predicts production of more differentiated goods when the level of intraindustry trade is greater; however, the predicted link to factor proportions is tenuous. Third, the predictions of a model with imperfect specialization that relies solely on differences in factor endowments find support in the data. These results suggest that factor endowments and increasing returns explain different components of the international variation of production patterns and trade volumes. [ABSTRACT FROM AUTHOR]

The coalition of North American labor unions and environmental organizations that joined in Seattle in 1999 is examined in the context of a Heckscher-Ohlin-Samuelson simulation in which a labor abundant developing country, with a comparative advantage in a globally polluting industry but a weak environmental policy, endeavors to export some of the output of that industry to a capital abundant industrialized country but is thwarted by a trade sanction that requires it to adopt the strong environmental policy of the industrialized country as a precondition for trade. Labor unions in the industrialized country and environmental organizations both gain when the developing country complies with the sanctions but lose out when the World Trade Organization overrules the sanctions as barriers to free trade. (JEL F11, Q25) [ABSTRACT FROM AUTHOR]

The authors illustrate how it is possible to implement a test circa 1913 of the Heckscher-Ohlin-Vanek (HOV) theory. In the HOV model, there remains a huge gap between theory and reality--a term Daniel Trefler (1995) coined the 'missing trade' to depict the extent to which measured trade is still negligible compared to the prediction of the pure theory. The HOV model lacks solid empirical evidence; therefore the authors use today's refined empirical skills to go back in time to test the model in its original context. The pre-1914 period makes a potentially better laboratory for testing pure trade theory compared to today. The authors found that for labor and capital the fit of the model is close to nonexistent. For resources, there is evidence that the model fits really quite well. Introducing extensions to the model, the fit is much improved by a Leontief-style productivity correction, but the results of a home-bias correction appear, in many cases, quite implausible. In conclusion, the authors found that the HOV model seems to work as well in its own time as it does today--that is, not very well at all.

Author Daniel Trefler offers a reply to the comment presented by Patrick Conway concerning the Heckscher-Ohlin-Vanek (HOV) model. Conway's major finding was that the HOV model performs much better for some categories of labor than for others. Trefler argues that Conway did not explore this finding as deeply as he should have. Trefler analyzes the Werner Antweiler and Trefler (2002) data on the educational content of trade. This analysis illustrates that the performance of the HOV model displays skill bias and capital-skill complementarities both in levels and in changes. Trefler also argues that Conway's factor-mobility explanation is inadequate and therefore offers evidence strongly supporting an alternative, human-capital explanation in its place.

Author Patrick Conway comments on the 'mysteries' identified by Daniel Trefler of the Heckscher-Ohlin-Vanek (HOV) model when examined empirically. Conway proposes alternative explanations for the mysteries that Trefler identified. He indicates the features of the data that lead to the mysteries and provides an intuitive separation of the mysteries into those observed in the pattern of trade and those observed in the volume of trade. Conway suggests that his comment offers three specific contributions. Taken together, they suggest that theories designed to explain observed trade patterns and volumes should reexamine the proxy for factor scarcity derived in the HOV model and should allow for the impact of factor-specific differences in the domestic mobility of factors of production.