Factor Specialization in U.S. and U.K. Trade: Simple Departures from the Factor-content Theory

In this paper we perform a theoretical and data analysis aimed at linking two strands of literature based on the Heckscher-Ohlin-Vanek (HOV) theorem. First, we calculate factor-intensity rankings for U.S. and U.K. global trade, using several natural resources, types of capital, and detailed labor occupations as factors. Taking the HOV theorem as a valid framework for analysis, we compute and compare statistically the factor-content rankings that emerge, relating these rankings to issues of comparative advantage. We go on to investigate whether there is greater specialization across broad factor categories or within factor categories, which has implications for the depiction of trade determinants. Second, we undertake an econometric comparison of the underlying input-output tables in the two economies to investigate the empirical basis for a fundamental HOV assumption. The fact that the U.S. and the U.K. have significant amounts of comparable data on industrial occupational employment allows for econometric specifications of a fairly general nature. We develop a series of estimable equations that allow for neutral productivity differences and measurement error. We use this approach to test HOV against more general alternatives. The results reject HOV in favor of a model with factor-augmenting industry-neutral parameters with measurement biases. On the consumption side it appears that the notion of identical, homothetic preferences is fairly consistent with the data, though available GNP figures misstate the apparent ratio of national expenditure shares.