Testing the Heckscher-Ohlin-Vanek Theory with a Natural Experiment

Type Working Paper
Title Testing the Heckscher-Ohlin-Vanek Theory with a Natural Experiment
Author(s)
Publication (Day/Month/Year) 2014
URL http://www.vanderbilt.edu/econ/conference/dynamics-growth-trade/DEGIT-Papers/Session 6A/Zimring​submission.pdf
Abstract
This paper uses the historical episode of the near-elimination of commuting from the West Bank into Israel, which caused a large and rapid expansion of the local labor force in the West Bank, to test the predictions of the Heckscher-Ohlin-Vanek (HOV) model of trade. I use variation between districts in the West Bank to test these predictions, and find strong support for them: Wage changes were not correlated with the size of the shock to the district labor force (Factor Price Insensitivity); districts that received a larger influx of returning commuters shifted production more toward labor-intensive industries (Rybczynski effect); and on the consumption side, the data are consistent with the assumption of identical homothetic preferences, which, combined with the production results, supports the Heckscher-Ohlin-Vanek theorem on the factor content of trade.

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