Specialization, Factor Uses and the Rybczynski Theorem
27 Pages Posted: 7 Feb 2006
Date Written: December 2005
We show that in the case of multiple goods and factors, the factor proportions theory has the following prediction: across industries, the impacts of the endowment of a given factor on industry outputs have positive co-variance with the relative uses of this factor. The intuition is that on average, the industries that use a given factor heavily have positive output responses following an increase in the endowment of this factor. The co-variation condition accommodates Hicks-neutral factor-augmenting productivity differences across countries. We also show that the predicted positive co-variance finds empirical support. This is evidence that is consistent with the Rybczynski mechanism of the factor proportions theory.
JEL Classification: F1
Suggested Citation: Suggested Citation