Chap009 - Chapter 09 Empirical Tests of the Factor...

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Chapter 09 – Empirical Tests of the Factor Endowments Approach CHAPTER 9 EMPIRICAL TESTS OF THE FACTOR ENDOWMENTS APPROACH Learning Objectives: To learn about the failure of U.S. trade patterns to conform to Heckscher-Ohlin predictions. To understand possible explanations of the U.S. trade paradox. To become acquainted with issues arising from multi-country Heckscher-Ohlin tests. To grasp the role of trade in generating growing income inequality in developed countries. I. Outline Introduction - Theories, Assumptions, and the Role of Empirical Work The Leontief Paradox Suggested Explanations for the Leontief Paradox - Demand Reversal - Factor-Intensity Reversal - U.S. Tariff Structure - Different Skill Levels of Labor - The Role of Natural Resources Other Tests of the Heckscher-Ohlin Theorem - Factor Content Approach with Many Factors - Comparisons of Calculated and Actual Abundances - Productivity Differences and “Home Bias” Heckscher-Ohlin and Income Inequality Summary II. Special Chapter Features In The Real World: Capital/Labor Ratios in Leading Export and Import Industries – Leontief Test In The Real World: Case of the Missing Trade and Other Mysteries In The Real World: Outsourcing and Wage Inequality in the United States 9-1
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Chapter 09 – Empirical Tests of the Factor Endowments Approach III. Purpose of Chapter The main purpose of this chapter is to summarize various tests of the Heckscher-Ohlin theorem as a predictor of trade patterns among countries, in order to acquaint students not only with the applicability/non-applicability of Heckscher-Ohlin in practice but also with relevant testing techniques. In addition, we have included material on the growing income inequality in developed countries so as to make students aware of the potential causal role of Heckscher-Ohlin trade in the phenomenon. As with the H-O theorem itself as the underlying basis of trade, there is also considerable controversy pertaining to the empirical importance of H-O trade in leading to the increased inequality. After digesting this chapter, students should have developed an appreciation of the difficulties of testing hypotheses in economics, as well as recognition that H-O has not been conclusively demonstrated to be empirically valid and that other factors besides trade may have played a role in the emergence of the greater inequality. IV. Teaching Tips A. The chapter begins with a discussion of a broader role for empirical work in international trade. Davis and Weinstein ( Eastern Economic Journal , Fall 1996) suggest that empirical work can be a key to analyzing the assumptions associated with different theories. This is exactly what students need to be doing in this chapter. Through examining the various tests of the Heckscher-Ohlin theorem, the students will increase their understanding of the strict assumptions made in the model and can determine which assumptions are crucial. B.
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This note was uploaded on 11/27/2009 for the course ECON 421 taught by Professor Macphee,c during the Spring '08 term at UNL.

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Chap009 - Chapter 09 Empirical Tests of the Factor...

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