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Factor Uses and the Pattern of Specialization

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  • Georg Schaur
  • Chong Xiang
  • Anya Savikhin

Abstract

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.

Suggested Citation

  • Georg Schaur & Chong Xiang & Anya Savikhin, 2008. "Factor Uses and the Pattern of Specialization," Review of International Economics, Wiley Blackwell, vol. 16(2), pages 368-382, May.
    • Handle: RePEc:bla:reviec:v:16:y:2008:i:2:p:368-382
    DOI: 10.1111/j.1467-9396.2007.00721.x
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    1. Donald R. Davis & David E. Weinstein, 1996. "Does Economic Geography Matter for International Specialization?," Harvard Institute of Economic Research Working Papers 1773, Harvard - Institute of Economic Research.
    2. James Harrigan & Egon Zakrajšek, 2000. "Factor supplies and specialization in the world economy," Finance and Economics Discussion Series 2000-43, Board of Governors of the Federal Reserve System (U.S.).
    3. Choi, E. Kwan & Harrigan, James, 2003. "Handbook of International Trade," Staff General Research Papers Archive 11375, Iowa State University, Department of Economics.
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    3. Eric O'N. Fisher, 2014. "Singular value decomposition of a technology matrix," International Journal of Economic Theory, The International Society for Economic Theory, vol. 10(1), pages 37-52, March.

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