Abstract
This paper analyses patterns of production across 14 industries in 45 regions from 7 European countries since 1975. We estimate an equation from neoclassical trade theory that relates an industry’s share of a region’s GDP to factor endowments, relative prices and technology. The strict version of the Heckscher–Ohlin model that assumes identical relative prices and technology is rejected against more general alternatives. However, factor endowments play a statistically significant and quantitatively important role in explaining production patterns. Factor endowments are more successful at explaining patterns of production in aggregate industries (Agriculture, Manufacturing and Services) than in disaggregated industries within manufacturing.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Bernstein, J., and D. Weinstein (2002). Do Endowments Determine the Location of Production? Evidence from National and International Data. Journal of International Economics 56 (1): 55–76.
Bowen, H., E. Leamer, and L. Sveikauskas (1987). Multicountry, Multifactor Tests of the Factor Abundance Theory. American Economic Review 77 (5): 791–809.
Cameron, G., and J. Muellbauer (1998). The Housing Market and Regional Commuting and Migration Costs. Scottish Journal of Political Economy 45 (4): 420–446.
Davis, D., D. Weinstein, S. Bradford, and K. Shimpo (1997). Using International and Japanese Regional Data to Determine When the Factor Abundance Theory of Trade Works. American Economic Review 87 (3): 421–446.
Dixit, A., and V. Norman (1980). The Theory of International Trade. Cambridge: Cambridge University Press.
Gabaix, X. (2005). The Factor Content of Trade: A Rejection of the Heckscher–Ohlin–Leontief Hypothesis. Mimeo, MIT.
Gandal, N., G. Hanson, and M. Slaughter (2004). Technology, Trade, and Adjustment to Immigration in Israel. European Economic Review 48 (2): 403–428.
Griliches, Z., and J. Hausman (1986). Errors in Variables in Panel Data. Journal of Econometrics 31 (1): 93–118.
Hanson, H., and M. Slaughter (2002). Labor Market Adjustment in Open Economies: Evidence from US States. Journal of International Economics 57 (1): 3–29.
Harrigan, J. (1995). Factor Endowments and the International Location of Production: Econometric Evidence for the OECD, 1970–1985. Journal of International Economics 39 (1–2): 123–141.
Harrigan, J. (1997). Technology, Factor Supplies, and International Specialization: Estimating the Neoclassical Model. American Economic Review 87 (4): 475–494.
Helpman, E. (1984). Increasing Returns, Imperfect Markets, and Trade Theory. In R. Jones and P. Kenen (eds.), Handbook of International Economics. Volume I. Amsterdam: North-Holland.
Helpman, E., and P. Krugman (1985). Market Structure and Foreign Trade. Cambridge, Mass.: MIT Press.
Im, K., M. Pesaran, and Y. Shin (2003). Testing for Unit Roots in Heterogeneous Panels. Journal of Econometrics 115 (1): 53–74.
Kohli, U. (1991). Technology, Duality and Foreign Trade. Ann Arbor: University of Michigan Press.
Leamer, E. (1984). Sources of Comparative Advantage: Theories and Evidence. Cambridge, Mass.: MIT Press.
Levin, A., and C. Lin (1992). Unit Root Tests in Panel Data: Asymptotic and Finite-Sample Properties. Discussion Paper 92–23. University of California, San Diego.
Machin, S., and J. Van Reenen (1998). Technology and Changes in Skill Structure: Evidence from Seven OECD Countries. Quarterly Journal of Economics 113 (4): 1215–1244.
Maddala, G., and S. Wu (1999). A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test. Oxford Bulletin of Economics and Statistics. Special Issue: 631–652.
McCormick, B. (1997). Regional Unemployment and Labour Mobility in the United Kingdom. European Economic Review 41 (3–5): 581–589.
Nickell, S., and B. Bell (1996). Changes in the Distribution of Wages and Unemployment in OECD Countries. American Economic Review 86 (2): 302–308.
Nickell, S., S. Redding, and J. Swaffield (2001). Educational Attainment, Labour Market Institutions and the Structure of Production. CEPR Discussion Paper 3068. Centre for Economic Policy Research, London.
Pedroni, P. (1999). Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors. Oxford Bulletin of Economics and Statistics. Special Issue: 653–670.
Pesaran, M., Y. Shin, and R. Smith (1999). Pooled Mean Group Estimation of Dynamic Heterogeneous Panels. Journal of the American Statistical Association 94 (446): 621–634.
Quah, D. (1994). Exploiting Cross-Section Variation for Unit Root Inference in Dynamic Data. Economics Letters 44 (1–2): 9–19.
Redding, S. (2002). Specialization Dynamics. Journal of International Economics 58 (2): 299–334.
Schott, P. (2003). One Size Fits All? Heckscher–Ohlin Specialization in Global Production. American Economic Review 93 (2): 686–708.
Trefler, D. (1995). The Case of the Missing Trade and Other Mysteries. American Economic Review 85 (5): 1029–1046.
Author information
Authors and Affiliations
Corresponding author
Additional information
JEL no.
F11, F14, R13
About this article
Cite this article
Redding, S., Vera-Martin, M. Factor Endowments and Production in European Regions. Rev. World Econ. 142, 1–32 (2006). https://doi.org/10.1007/s10290-006-0055-y
Issue Date:
DOI: https://doi.org/10.1007/s10290-006-0055-y