Chapter

Inferring Relative Factor Price Changes from Quantitative Data

Robert E. Baldwin

in Topics in Empirical International Economics

Published by University of Chicago Press

Published in print April 2001 | ISBN: 9780226060835
Published online February 2013 | e-ISBN: 9780226060859 | DOI: http://dx.doi.org/10.7208/chicago/9780226060859.003.0003
Inferring Relative Factor Price Changes from Quantitative Data

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Due to the indeterminacy of the commodity composition of trade in models with two or more factors and more goods than factors, it is useful to interpret the Heckscher-Ohlin theorem in terms of the exchange of a country's relatively abundant productive factors for its relatively scarce factors. Testing this theorem empirically now invariably involves calculating the factor content of the goods and services traded internationally. Some economists have also recently utilized measures of the factor content of trade to draw inferences about the causes of observed changes in relative factor prices. Another important quantitative relationship in trade theory used to draw conclusions about the causes of factor price changes is the behavior of factor proportions within and among industries. This chapter investigates, within the general equilibrium framework utilized by trade economists, the theoretical appropriateness of linking these quantitative measures to factor price changes. It presents empirical estimates of how trade may have affected the wage gap between more educated and less educated workers in the United States.

Keywords: relative factor prices; trade theory; wage gap; Heckscher-Ohlin theorem; trade; price changes; United States

Chapter.  9786 words.  Illustrated.

Subjects: International Economics

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