The factor content of regional bilateral trade: The role of technology and demand |
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| Authors: | Andrés Artal-Tur Juana Castillo-Giménez Carlos Llano-Verduras Francisco Requena-Silvente |
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| Institution: | 1. Center for Systems Integration and Sustainability, Michigan State University, East Lansing 48823, USA;2. Center for Energy and Environmental Sciences, University of Groningen, 9747 AG Groningen, the Netherlands;3. International Institute for Applied Systems Analysis (IIASA), Laxenburg, Austria;4. Department of Geography, Environment, and Spatial Sciences, Michigan State University, East Lansing 48823, USA;5. Department of Geography, South Dakota State University, Brookings, SD 57007, USA |
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| Abstract: | The Heckscher–Ohlin–Vanek (HOV) model in its strict form has been strongly rejected by the data. Relaxing some assumptions of the standard HOV model is key to find improvements in its performance. We apply the Davis and Weinstein (2001) methodology to analyse the validity of the HOV model using regions rather than countries. Surprisingly, our results using data for 17 Spanish regions are similar to theirs with international data for OECD countries. Accounting for technological differences improves the predictive capacity of the factor proportions model and including trade costs and geography reduces significantly the missing trade problem. However, relaxing the assumption of factor price equalisation does not improve the performance of the HOV model in a regional setting. |
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