Report

Technology, factor supplies, and international specialization: estimating the neoclassical model

Abstract: The standard neoclassical model of trade theory predicts that international specialization will be jointly determined by cross-country differences in relative factor endowments and relative technology levels. This paper uses economic theory to specify an empirical model of specialization consistent with the neoclassical explanation. According to the empirical model, a sector's share in GDP depends on both relative factor supplies and relative technology differences, and the estimated parameters of the model have a close and clear connection to theoretical parameters. The model is estimated for manufacturing sectors using a twenty-year, ten-country panel of data on the industrialized countries. Relative technology levels and factor supplies are both found to be an important determinant of specialization.

Keywords: International trade; Technology;

Status: Published in American Economic Review 87, no. 4 (September 1997): 475-94

Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Staff Reports

Publication Date: 1996

Number: 15