Factor Endowments and Regional Location of Production: Evidence from Vietnam

This paper uses inter-regional input-output data and factor endowments of Vietnam to examine the relationship between factor endowments and production patterns. We present a multi-sectoral integrated activity analysis model to examine that if labor and capital could reallocate across sectors and regions, what would be in a competitive benchmark the optimal output allocation across the three regions and from there to test various theories on the reasons for the directions of inter-regional trade in goods and/or factors of production. Using the results from the model that would indicate the interregional exchanges of intermediate inputs, final demand and value added, we examine the relationship between inter-regional flows of trade on endowments at the observed and optimal levels to test Heckscher-Ohlin theory. Are regional specializations due to differences in endowments, technologies or demand? We found that the Heckscher-Ohlin factor abundance specialization hypothesis is only supported by the data of regions stay in relative extreme level of factor abundance(Hanoi and Rest of Vietnam) but not holds true in case of Ho Chi Minh.