The Heckscher-Ohlin-Vanek Model of Trade: Why Does It Fail? When Does It Work?

Donald Davis (), David Weinstein, Scott Bradford () and Kazushige Shimpo

No 5625, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The Heckscher-Ohlin-Vanek model of factor service trade is a central construct in international economics. Empirically, though, it is a flop. This warrants a new approach. Using Japanese regional data we are able to test the HOV model by independently examining its component production and consumption elements. The strict HOV model performs poorly because it cannot explain the international location of production. However, relaxing the assumption of universal factor price equalization yields a dramatic improvement. We also solve most of what Trefler (1995) calls the mystery of the missing trade. In sum, the HOV model performs remarkably well.

JEL-codes: D5 F1 (search for similar items in EconPapers)
Date: 1996-06
Note: ITI
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Published as American Economic Review (June 1997).

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