Do Endowments Predict the Location of Production? Evidence from National and International Data

Jeffrey R. Bernstein and David Weinstein

No 6815, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Examining the relationship between factor endowments and production patterns using international and Japanese regional data, we provide the first empirical confirmation of Ethier's correlation approach to the Rybczynski theorem. Moreover, we find evidence of substantial production indeterminacy. Prediction errors are six to thirty times larger for goods traded relatively freely. A compelling explanation of this phenomenon is the existence of more goods than factors in the presence of trade costs. This result implies that regressions of trade or output on endowments have weak theoretical foundations. Furthermore, since errors are largest in data sets where trade costs are small, we explain why the common methodology of imputing trade barriers from regression residuals often leads to backwards results.

JEL-codes: F11 R13 (search for similar items in EconPapers)
Date: 1998-11
Note: ITI
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

Published as Bernstein, Jeffrey R. and David E. Weinstein. "Do Endowments Predict The Location Of Production," Journal of International Economics, 2002, v56(1,Jan), 55-76.

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