Empirical Tests of H-O Model

1. Empirical Tests of H-O Model Results and techniques

2. The results • The 1947 data for the U.S. trade have shown labor-intensive exports and capital-intensive imports against the prediction of H-O model • The possible explanations included the choice of the year, the use of import substitutes and the omission of land factor

3. Leontief Paradox • Input-output model with import substitute proxies (import production info unavailable) • 30% of import substitute were more K-intensive than U.S. exports • Greater productivity of the American labor • The U.S. tastes biased to K-intensive goods • The omission of human capital • Tariffs protecting L-intensive industries • Other resource not included

4. Followup tests • Kravis 1956(wages in exports content were 15% higher than in import substitutes) • Keesing 1966 skill intensive exports compared to import substitutes • Kenen 1965 recomputed the physical requirements for K and L and without excluding natural resources eliminated the paradox • Baldwin in 1971 updated the Leontief’s findings for 1962 and extended them to other countries • Leamer 1980 extended the framework to multi-factor world • In the 1990s a number of economists and the World Bank extended the test to the other developed countries and the developing ones

5. The more recent tests • Accounting for human capital component and skill variations in empirical tests have once again validated the predictions of H-O model for inter-industrial trade but not for the intra-industrial one