Working Paper: NBER ID: w24078
Authors: Peter M. Morrow; Daniel Trefler
Abstract: We develop a multi-factor, multi-sector Eaton-Kortum model in order to examine the impact of trade costs, factor endowments, and technology (both Ricardian and factor-augmenting) on factor prices, trade in goods, and trade in the services of primary factors (value-added trade). This framework nests the Heckscher-Ohlin-Vanek (HOV) model and the Vanek factor content of trade prediction. We take the model to the data using skilled and unskilled data for 38 countries. We have two findings. First, the key determinants of international variation in the factor content of trade are endowments and international variation in factor inputs used per dollar of output. Input-usage variation in turn is driven by (1) factor-augmenting international technology differences and (2) international factor price differences. Second, our estimates of factor-augmenting international technology differences — which imply cross-country variation in skill-biased technologies — are empirically similar to those used to rationalize cross-country evidence on income differences and directed technical change.
Keywords: trade; factor prices; technology; endowments; skill-biased technology
JEL Codes: F1; F11; F14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| endowments (D64) | international variation in factor content of trade (F16) |
| international variation in factor inputs used per dollar of output (F29) | international variation in factor content of trade (F16) |
| factor-augmenting international technology differences (F20) | input usage variation (C67) |
| international factor price differences (F16) | input usage variation (C67) |
| factor-augmenting international technology differences (F20) | international factor price differences (F16) |
| international factor price differences (F16) | factor-augmenting international technology differences (F20) |
| technology differences (L15) | factor price variations (P22) |
| failure of Vanek factor content prediction (C59) | international differences in use of skilled and unskilled labor (F66) |
| international factor price differences (F16) | failure of Vanek factor content prediction (C59) |
| factor-augmenting technology differences (O33) | failure of Vanek factor content prediction (C59) |