Reaping the Gains: Specialization and Capital Flows

Jakob Schwab and Christina Ortseifer

VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy from Verein für Socialpolitik / German Economic Association

Abstract: This paper gives a new answer to the old question of whether international trade and capital flows are substitutes or complements. In contrast to conventional intuition, we show that when Heckscher-Ohlin trade takes place in high-skill and low-skill intensive goods, this does create incentives for capital flows. Technically, we incorporate capital as a composite factor in a tractable 3-factor neoclassical trade model. It shows that countries for whom trade induces greater trade specialization observe larger capital inflows. By using data on revealed comparative advantage while controlling for common factors, we provide emprical evidence for our results.

JEL-codes: F11 F14 F21 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-int
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc15:113194

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