International Factor Price Differences: Leontief Was Right!

Daniel Trefler

Journal of Political Economy, 1993, vol. 101, issue 6, 961-87

Abstract: The factor price equalization hypothesis is widely at odds with the large variation in factor prices across countries. similarly, the Heckscher-Ohlin-Vanek theorem constitutes an incomplete description of trade in factor services: its predictions are always rejected empirically. These two issues are examined using a modification of the Heckscher-Ohlin-Vanek model that allows for factor-augmenting international productivity differences. The empirical results are stark: this simple modification of the Heckscher-Ohlin-Vanek theorem explains much of the factor content of trade and the cross-country variation in factor prices. Copyright 1993 by University of Chicago Press.

Date: 1993
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