Refutable Implications of the Heckscher-Ohlin Model

Uday Rajan
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Uday Rajan: Department of Economics, Stanford University

International Trade from EconWPA

Abstract: Previous empirical tests have found that, contrary to the conclusions of the Heckscher-Ohlin model, the factor composition of traded goods fails to reveal relative factor abundance rankings. Using a nonparametric approach, this paper discusses the refutability of two of the assumptions of the HO model: that countries have identical homothetic preferences and identical constant returns to scale production functions. We find that, for two countries, the assumption on preferences cannot be refuted with expenditure data alone. However, the assumption on technologies is refutable even when some factor prices (such as the rental rate on capital) are unobserved. Finally, we consider the refutability of Deardorff's (1982) more general HO model, the main result of which is that the value of net factor exports at (intrinsically unobservable) autarky factor prices is negative. We show that, in the $2 \times 2$ case, this model can be refuted using just observed data, i.e. data from the observed situation under trade.

JEL-codes: F1 F2 (search for similar items in EconPapers)
Date: 1995-02-13
Note: 28 pages, LaTeX file
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpit:9502001

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