A Test of the General Validity of the Heckscher-Ohlin Theorem for Trade in the European Community

Download or read book A Test of the General Validity of the Heckscher-Ohlin Theorem for Trade in the European Community written by Ms.Dalia Hakura and published by International Monetary Fund. This book was released on 1999-05-01 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: While the Heckscher-Ohlin-Vanek (HOV) theorem has been a dominant paradigm in trade theory, the empirical evidence to support it has been weak. This paper develops a modified HOV model that allows technologies to differ across countries. The revised model significantly improves the theory’s accuracy in predicting trade flows in contrast to the traditional model. The paper also illustrates that, since countries have different technologies, measures of factor contents of trade in final goods using direct and domestically produced indirect input requirements are more accurate and yield more consistent predictions than do traditional measures.