What's the Use of Factor Contents?

By Ed Leamer. 2000

238 citations recorded by the source corpus.

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.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/3041d167d7f63a7483f4d46af0d2d893fe4ac8db

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Citations in the corpus

Survival of the Best Fit: Exposure to Low-Wage Countries and the (Uneven) Growth of U.S. Manufacturing Plants ∗ (2003, background): “The model of Olley and Pakes (1996) predicts faster growth for more capital-intensive and productive plants.”
Survival of the best fit: exposure to low-wage countries and the (uneven) growth of U.S. manufacturing plants (2003, background): “(16)The model of Olley and Pakes (1996) predicts faster growth for more capital-intensive and productive plants.”
GLOBALIZATION AND MARKET STRUCTURE (2003, background): “In the words of Leamer (2000), the “news” about changes in foreign”
Does immigration affect wages? A look at occupation-level evidence (2007, background): “Please address questions regarding content to Pia Orrenius, Research Department, Federal Reserve Bank of Dallas, 2200 N. Pearl Street, Dallas, Texas 75201, 214-922-5747, pia.orrenius@dal.frb.org, or Madeline Zavodny, Department of Economics, Occidental College, 1600 Campus Road, Los Angeles, Califor”
People Flows in Globalization (2006, background): “These calculations generated debate about the appropriate counterfactual for factor content analysis (Krugman, 2000; Deardorff, 2000; Leamer, 2000) and the appropriate input ratios (Wood, 1994; Borjas, Freeman and Katz, 1997).”
Nonparametric Counterfactual Predictions in Neoclassical Models of International Trade (2017, methodology): “Finally, our work provides theoretical foundations for factor-content-based analysis of the relationship between international trade and inequality in general equilibrium: see, e.g., Deardorff and Staiger (1988); Krugman (2000); and Leamer (2000).”