A test for Heckscher-Ohlin using value-added exports

TL;DR

This paper tests the Heckscher-Ohlin model's predictions using value-added trade data, finding mixed support depending on how factor endowments are measured, with stronger evidence when considering total factor compensations.

Contribution

It introduces a novel approach by analyzing value-added exports with different measures of factor endowments, providing nuanced insights into the model's empirical validity.

Findings

Support for Heckscher-Ohlin when using total factor compensation ratios.

Evidence against Heckscher-Ohlin with labor-capital intensity ratios.

Support for nine out of twelve industries analyzed.

Abstract

Empirical evidence for the Heckscher-Ohlin model has been inconclusive. We test whether the predictions of the Heckscher-Ohlin Theorem with respect to labor and capital find support in value-added trade. Defining labor-capital intensities and endowments as the ratio of hours worked to the nominal capital stock, we find evidence against Heckscher-Ohlin. However, taking the ratio of total factor compensations, and thus accounting for differences in technologies, we find strong support for it. That is, labor-abundant countries tend to export value-added in goods of labor-intensive industries. Moreover, differentiating between broad industries, we find support for nine out of twelve industries.