The factor content of regional bilateral trade: the role of technology and demand

Andrés Artal-Tur, Juana Castillo, Carlos Llano-Verduras and Francisco Requena-Silvente
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Andrés Artal-Tur: Technical University of Cartagena, Spain
Carlos Llano-Verduras: Autónoma University of Madrid and CEPREDE, Lawrence R. Klein Institute, Spain
Francisco Requena-Silvente: University of Valencia, Spain
Authors registered in the RePEc Author Service: Francisco Requena Silvente and Carlos Llano Verduras

No 1007, Working Papers from Department of Applied Economics II, Universidad de Valencia

Abstract: The Heckscher-Ohlin-Vanek (HOV) model in its strict form has been strongly rejected by the data. Relaxing some assumptions of the standard HOV model is key to find improvements in its performance. We apply Davis and Weinstein (2001) methodology to analyse the validity of the HOV model using regions rather than countries. Surprisingly, our results using data for 17 Spanish regions are similar to theirs with international data for OECD countries. Accounting for technological differences improve the predictive capacity of the factor proportions model and including trade costs and geography reduce significantly the missing trade problem. However, relaxing the assumption of factor price equalisation does not improve the performance of the HOV model in a regional setting.

Keywords: Heckscher-Ohlin-Vanek (HOV) model; technological differences; gravity equation; Spanish regions (search for similar items in EconPapers)
JEL-codes: F11 F14 R12 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2010-12
New Economics Papers: this item is included in nep-int
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http://repecsrv.uv.es/paper/RePEc/pdf/eec_1007.pdf First version, 2010 (application/pdf)

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Journal Article: The factor content of regional bilateral trade: The role of technology and demand (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eec:wpaper:1007

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