Testing the Heckscher-Ohlin-Vanek Theory with a Natural Experiment

Assaf Zimring
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Assaf Zimring: University of Michigan

No 642, Working Papers from Research Seminar in International Economics, University of Michigan

Abstract: This paper uses the historical episode of the near-elimination of commuting from the West Bank into Israel, which caused a large and rapid expansion of the local labor force in the West Bank, to test the predictions of the Heckscher-Ohlin-Vanek (HOV) model of trade. I use variation between districts in the West Bank to test these predictions, and find strong support for them: Wage changes were not correlated with the size of the shock to the district labor force (Factor Price Insensitivity); Districts that received larger influx of returning commuters shifted production more towards labor intensive industries (Rybczynski effect); and on the consumption side, the data are consistent with the assumption of identical homothetic preferences, which, combined with the production results, supports the Heckscher-Ohlin-Vanek theorem on the factor content of trade.

Keywords: Heckscher-Ohlin-Vanek; Rybczynski; West Bank; Natural Experiment (search for similar items in EconPapers)
JEL-codes: F11 F14 F16 F51 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2015-05
New Economics Papers: this item is included in nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:mie:wpaper:642

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