NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

One Size Fits All? Heckscher-Ohlin Specialization in Global Production

Peter K. Schott

NBER Working Paper No. 8244
Issued in April 2001
NBER Program(s):   ITI

Many previous tests of Heckscher-Ohlin trade theory have found underwhelming support for the idea that countries' endowments determine their production and trade. This paper demonstrates that those efforts suffer from their focus on the narrower of the model's two potential equilibria, which assumes that all countries produce all goods. In this paper we introduce a more general technique for testing the model that allows for the possibility that countries with sufficiently disparate endowments specialize in unique subsets of goods. Results using this technique indicate strong support for Heckscher-Ohlin specialization versus one-size-fits-all homogeneity. Our results also demonstrate that the empirical evaluation of trade models has been hampered by the coarse aggregation of output inherent in existing datasets. Indeed, we show that traditional categorizations of goods hide a substantial degree of cross-country price and input intensity heterogeneity, violating the assumptions of the factor proportions framework and rendering previous estimation results difficult to interpret. To overcome this problem, we introduce a methodology for aggregating goods that corrects for underlying product variation. Estimation of the model using corrected aggregates reveals even stronger support for Heckscher-Ohlin specialization. The importance of specialization for the evolution of developed country wage inequality is also discussed.

download in pdf format
   (847 K)

email paper

This paper is available as PDF (847 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w8244

Published: Schott, Peter K. "One Size Fits All? Heckscher-Ohlin Specialization In Global Production," American Economic Review, 2003, v93(3,Jun), 686-708. citation courtesy of

Users who downloaded this paper also downloaded these:
Davis and Weinstein w6785 An Account of Global Factor Trade
O'Rourke w9872 Heckscher-Ohlin Theory and Individual Attitudes Towards Globalization
Davis, Weinstein, Bradford, and Shimpo w5625 The Heckscher-Ohlin-Vanek Model of Trade: Why Does It Fail? When Does It Work?
Davis and Weinstein w8637 The Factor Content of Trade
Deardorff Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us