Diversification cones, trade costs and factor market linkages

This paper finds non-uniform differences in the distribution functions of factor usage intensities among 10 rich OECD countries. The 10 countries form three distinct groups such that the between-group differences are more pronounced than within-group differences and capital-abundant countries are in capital-abundant groups. The estimation works even if the same industry codes represent different goods across countries in the data. The finding is consistent with the multiple-cone factor proportions theory with zero trade costs with each group being one cone. An alternative interpretation is non-zero trade costs. Both interpretations imply weak factor market linkages between the countries in different groups.