Working Paper: CEPR ID: DP6290
Authors: Alejandro Cuat; Marco Maffezzoli
Abstract: Development accounting exercises based on an aggregate production function find technology is biased in favour of a country's abundant production factors. We provide an explanation to this finding based on the Heckscher-Ohlin model. Countries trade and specialize in the industries that use intensively the production factors they are abundantly endowed with. For given endowment ratios, this implies smaller international differences in factor price ratios than under autarky. Thus, when measuring the factor bias of technology with the same aggregate production function for all countries, they appear to have an abundant-factor bias in their technologies.
Keywords: Development Accounting; Heckscher-Ohlin; International Trade; Simulation
JEL Codes: F1; F4; O4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| abundant skilled labor (J24) | specialization in skill-intensive industries (J24) |
| specialization in skill-intensive industries (J24) | bias in technology favoring skilled labor (J24) |
| comparative advantage (F11) | systematic differences in production structures (L23) |
| trade (F19) | specialization based on factor endowments (F11) |
| trade affects factor prices (F16) | bias in technology (O33) |
| skill premium (J24) | skill abundance is flatter in trade equilibrium (F16) |
| specialization reduces skill premium (J24) | skill premium for abundant factor (J24) |