Intraindustry Trade and Relative Factor Endowments

This article investigates the relationship between relative factor endowments and intraindustry trade shares in bilateral trade flows. While Helpman and Krugman's theoretical framework predicts a negative relationship, empirical studies often report contrary results. We, however, argue that previous empirical studies fail to provide an exact link between the theory and the data. New empirical evidence based on the estimating equation derived directly from the theoretical framework demonstrates that the theory finds support in the data once the sums of capital–labor ratios are controlled for.