Does the Home Bias Explain Missing Trade in Factors?
By: Stehrer, Robert.
Material type: BookSeries: wiiw Working Papers: 110Publisher: Wien : Wiener Institut für Internationale Wirtschaftsvergleiche (wiiw), 2014Description: 26 S., 13 Tables and 2 Figures, 30cm.Subject(s): factor content of trade | Heckscher-Ohlin-Vanek | home bias | non-homothetic tastes | technologyCountries covered: non specificwiiw Research Areas: International Trade, Competitiveness and FDIClassification: F1 | F15 | F19 Online resources: Click here to access online Summary: Abstract It is now widely accepted that when controlling for international differences in production techniques, the predictions from the Heckscher-Ohlin-Vanek (HOV) theorem are largely satisfied. However, a large amount of ‘missing trade’ remains. This paper makes two main contributions: Firstly, the HOV is tested for various production factors including labour by educational attainment levels (high, medium, low) and capital. Secondly, the paper allows for a more general structure of final consumption in the HOV framework with technology differences, which reduces the amount of missing trade. We test for the effects of non-homothetic preferences, home bias of consumption and the role of distance at the country and industry level. We discuss how this can be tackled in the analytical framework both for a country’s total exports but also in a bilateral way. Results are shown both for total trade and bilateral trade. Empirically we draw on the recently released World Input-Output Database (WIOD) and show the extent of reductions in ‘missing trade’ caused by the various assumptions and restrictions on demand structures.Item type | Current library | Call number | Status | Date due | Barcode | |
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Paper | WIIW Library | 5.700/110 (Browse shelf(Opens below)) | Available | 1000010003543 |
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Abstract
It is now widely accepted that when controlling for international differences in production techniques, the predictions from the Heckscher-Ohlin-Vanek (HOV) theorem are largely satisfied. However, a large amount of ‘missing trade’ remains. This paper makes two main contributions: Firstly, the HOV is tested for various production factors including labour by educational attainment levels (high, medium, low) and capital. Secondly, the paper allows for a more general structure of final consumption in the HOV framework with technology differences, which reduces the amount of missing trade. We test for the effects of non-homothetic preferences, home bias of consumption and the role of distance at the country and industry level. We discuss how this can be tackled in the analytical framework both for a country’s total exports but also in a bilateral way. Results are shown both for total trade and bilateral trade. Empirically we draw on the recently released World Input-Output Database (WIOD) and show the extent of reductions in ‘missing trade’ caused by the various assumptions and restrictions on demand structures.