Reconsidering the Role of Capital Accumulation for International Specialization across Industries

The Heckscher-Ohlin-Vanek (HOV) model allows us to analyze whether countries specialize in particular subsets of industries as they accumulate production factors. Davis and Weinstein (2001) provided evidence that global data supports the HOV model when production techniques are modified to reflect countries’ capital abundances. However, once factor trades are measured bilaterally from the producer countries’ techniques, the HOV prediction can be supported without specialization. This paper examines the relative importance of specialization and technical differences. While I find that developed and developing countries employ different techniques, capital accumulation does not cause a shift in the domestic production mix towards more capital-intensive one. The international mobility in capital appears to be crucial to understand why it is difficult to provide evidence for capital-driven specialization.