Working Paper: CEPR ID: DP3755
Authors: Stephen Redding; Mercedes Veramartin
Abstract: This Paper analyses patterns of production across 14 industries in 45 regions from seven European countries since 1975. We estimate a structural equation derived directly from neoclassical trade theory that relates an industry?s share of a region?s GDP to factor endowments, relative prices and technology. Although factor endowments play a statistically significant and quantitatively important role in explaining production patterns, the Heckscher-Ohlin model is rejected against more general alternatives that allow for regional variation in relative prices and technology. Factor endowments are more successful at explaining patterns of production in aggregate industries (Agriculture, Manufacturing, Services) than in disaggregated industries within Manufacturing.
Keywords: European Integration; Factor Endowments; Heckscher-Ohlin; Neoclassical Model; Specialization
JEL Codes: F11; F14; R13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| factor endowments (D29) | production patterns (L23) |
| physical capital (E22) | manufacturing share (L60) |
| physical capital (E22) | agriculture (Q10) |
| physical capital (E22) | services (L84) |
| factor endowments (D29) | production structure (L23) |
| economic integration (F15) | relationship between production patterns and factor endowments (F16) |