Factor Uses and the Pattern of Specialization

We show that in the setting of multiple goods and factors, the factor proportions theory has the following prediction: across industries, the impacts of the endowment of a given factor on industry outputs have positive co‐variance with the relative uses of this factor. The intuition is that, on average, the industries that use a given factor heavily have positive output responses, following an increase in the endowment of this factor. This co‐variation condition is robust to Hicks neutral‐ and factor‐augmenting productivity differences, and constitutes a direct test of the production side of the factor proportions theory. We also show that the co‐variation condition finds empirical support. This is evidence that is consistent with the factor proportions theory.