Lumpy countries, urbanization, and trade

Lumpiness of production factors within a country might overturn the Heckscher–Ohlin (HO) model's predictions for the factor content of trade. Trade patterns, as predicted by this model, can both be magnified or reversed by uneven concentration of production factors within a country. Cities are the most characteristic manifestation of lumpiness of production factors and as a consequence different patterns of urbanization between countries might cause trade patterns to differ from the HO model's predictions on the basis of the overall availability of production factors. Using data on cities we provide evidence that the so-called lens condition is violated, suggesting that from an urban perspective lumpiness matters.