What's the Use of Factor Contents? / Edward E. Leamer.

Format:

Book

Author/Creator:

Leamer, Edward E.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w5448.

NBER working paper series no. w5448

Language:

English

Subjects (All):

Comparative advantage (International trade).

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1996.

Cambridge, Massachusetts : National Bureau of Economic Research, [1996]

Summary:

The net imports of labor embodied in international trade has been a fairly small and stable share of the US labor force. From this some conclude that trade has not been a major contributor to the income inequality trends. This is a non sequitur. The labor embodied in trade is jointly determined by tastes, technologies, factor supplies and the external goods market. Although it is impossible to use factor contents to disentangle trade from technology, the factor contents can be used to suggest the change of earnings shares if the country were to close down external trade entirely. However, this is a proper application of factor contents only if tastes and technologies are log-linear, if trade is balanced and if foreign input intensities are used to compute factor contents of non-competing imports. Factor contents are virtually useless if technologies and tastes are not log-linear, or if the external deficit is substantial and variable. Factor contents do not tell us anything about earnings levels as opposed to shares. They also do not inform us of the impact of partial trade barriers that change relative product prices but do not completely eliminate trade. In other words, the title question is rhetorical.

Notes:

Print version record

February 1996.