Factor Proportions and the Growth of World Trade

Edinburgh School of Economics Discussion Paper Series from Edinburgh School of Economics, University of Edinburgh

Abstract: Most of the expansion of global trade during the last three decades has been of the North-South kind - between capital-abundant developed and labour-abundant developing countries. Based on this observation, I argue that the recent growth of world trade is best understood from a factor-proportions perspective. I present novel evidence documenting that differences in capital-labour ratios across countries have increased in the wake of two shocks to the global economy: i) the opening up of China and ii) financial globalisation and the resulting upstream capital flows towards capital-abundant regions. I analyse their impact on specialisation and the volume of trade in a dynamic model which combines factor-proportions trade in goods with international trade in financial assets. Calibrating this model, I find that it can account for 60% of world trade growth between 1980 and 2007. It is also capable of predicting international investment patterns which are consistent with the data.

Keywords: Heckscher-Ohlin; international trade; China; financial globalisation (search for similar items in EconPapers)
JEL-codes: F11 F14 F21 F32 F43 (search for similar items in EconPapers)
Pages: 47
Date: 2012-07
New Economics Papers: this item is included in nep-int
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.econ.ed.ac.uk/papers/id226_esedps.pdf

Related works:
Journal Article: Factor proportions and the growth of world trade (2015)
Working Paper: Factor Proportions and the Growth of World Trade (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:edn:esedps:226

Access Statistics for this paper

More papers in Edinburgh School of Economics Discussion Paper Series from Edinburgh School of Economics, University of Edinburgh 31 Buccleuch Place, EH8 9JT, Edinburgh. Contact information at EDIRC.
Bibliographic data for series maintained by Research Office ().