DP6290 Specialization Patterns and the Factor Bias of Technology

Author(s): Alejandro Cuñat, Marco Maffezzoli
Publication Date: May 2007
Keyword(s): Development Accounting, Heckscher-Ohlin, International Trade, Simulation
JEL(s): F1, F4, O4
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=6290

Development accounting exercises based on an aggregate production function find technology is biased in favour of a country's abundant production factors. We provide an explanation to this finding based on the Heckscher-Ohlin model. Countries trade and specialize in the industries that use intensively the production factors they are abundantly endowed with. For given endowment ratios, this implies smaller international differences in factor price ratios than under autarky. Thus, when measuring the factor bias of technology with the same aggregate production function for all countries, they appear to have an abundant-factor bias in their technologies.