Leontiei jaradox and the roe oi iactor intensity

measurement
Ynn-kwong Iwok

Dcakin Univcrsiiy, Ansiralia

Locn S. H. Yn

Ciiy Univcrsiiy ol Hong Iong

20il May, 200

In conliasl wilh lho piooiclion of lho Hockschoi-Ohlin (HO) lhooiom, Loon-

liof (108) founo lhal lho capilal-laLoi ialio omLooioo in lho US oxpoils is
smalloi lhan lho capilal-laLoi ialio omLooioo in lho US compolilivo impoil
ioplacomonls. In Loonliof`s analysis, lho moasuioo facloi conlonl of US im-
poils is compuloo Lasoo on lho assumplion lhal all counliios aio using lho
US facloi inlonsily lochniquos. 1his papoi iolaxos lho assumplion of ioonlical
facloi inlonsily lochniquos. Il usos an infoiiing molhoo lo infoi lho facloi in-
lonsily lochniquos of oiloionl counliios Lasoo on inloinalional iolalivo facloi
piico oiloioncos. Wilh lho infoiioo oiloionlialoo facloi inlonsily lochniquos,
lho Loonliof paiaoox is io-invosligaloo ano is founo lo Lo oilhoi oisappoaioo
oi oasoo.
J.L.L. Classilcalion: F1; F11; D2; D
Koywoios: Loonliof paiaoox, facloi conlonl of liaoo, iolalivo facloi piico
oiloioncos

::nJn: School of Accounling, Lconomics ano Financo, Doakin Univoisily, 221 Lui-
wooo Highway, Luiwooo, Vicloiia, Auslialia 812. J| : 61-8-024-4640. 1nr: 61-8-024-47248.
1nn.| : yunkwokw^ooakin.oou.au

::nJn: Dopailmonl of Lconomics ano Financo, Cily Univoisily of Hong Kong, 88

1al Choo Avonuo, Kowloon 1ong, Hong Kong. J| : 82-2788-7604. 1nr: 82-2788-888. 1nn.| :
ofooonyu^cilyu.oou.hk
Leontiei jaradox and the roe oi iactor intensity
measurement
20il May, 200

In conirasi wiil ilc prcoiciion ol ilc Hccksclcr-Ollin (HO) ilco-

rcm, Lconiicl (193) lonno ilai ilc capiial-laor raiio cmooico in ilc
US cxporis is smallcr ilan ilc capiial-laor raiio cmooico in ilc US
compciiiivc impori rcplaccmcnis. In Lconiicl`s analysis, ilc mcasnrco
lacior conicni ol US imporis is compnico asco on ilc assnmpiion ilai
all connirics arc nsing ilc US lacior inicnsiiy icclniqncs. Jlis papcr rc-
laxcs ilc assnmpiion ol iocniical lacior inicnsiiy icclniqncs. Ii nscs an
inlcrring mciloo io inlcr ilc lacior inicnsiiy icclniqncs ol oincrcni conn-
irics asco on inicrnaiional rclaiivc lacior pricc oincrcnccs. Wiil ilc
inlcrrco oincrcniiaico lacior inicnsiiy icclniqncs, ilc Lconiicl paraoox is
rc-invcsiigaico ano is lonno io c ciilcr oisappcarco or casco.
J.L.L. Classincaiion: F1: F11: D2: D
Icyworos: Lconiicl paraoox, lacior conicni ol iraoc, rclaiivc lacior
pricc oincrcnccs
1
1 IntroductIon
Jlc cxpansion ol gloal iraoc rcccivcs so mncl aiicniion largcly ccansc ii las im-
poriani innncnccs on ilc lacior markcis ol connirics involvco. Jlis also cxplains wly,
alicr occaocs, ilc Hccksclcr-Ollin (HO) ilcorcm is siill a mainsiay ol inicrnaiional
cconomics. Jlc HO ilcorcm, wlicl locnscs on ilc rclaiionslip ciwccn proonciion
laciors ano iraoc, prcoicis ilai a conniry will cxpori commooiiics ilai arc inicnsivc
in ilc conniry`s rclaiivcly annoani laciors ano will impori commooiiics ilai arc in-
icnsivc in ilc conniry`s rclaiivcly scarcc laciors. Conscqncnily, ilcorics aoni lacior
priccs ano aoni wcllarc ol oincrcni proonciion laciors arc ocvclopco asco on ilis
moocl.
Jlc prcoiciion ol ilc HO ilcorcm is conccpinally convincing: lowcvcr, iis cm-
pirical applicailiiy is in ooni. Lconiicl (193) lonno ilai ilc capiial-laor raiio
cmooico in US cxporis is smallcr ilan ilc capiial-laor raiio cmooico in US com-
pciiiivc impori rcplaccmcnis. Lasco on onr clicl ilai ilc US is capiial annoani,
ilis plcnomcnon sccms coniraoici ilc HO`s prcoiciion ol ilc paiicrn ol iraoc. Jlis is
known as ilc Lconiicl paraoox, wlicl is commonly rcgaroco as ilc carlicsi cmpirical
nnoing ilai qncsiions ilc praciical valioiiy ol ilc HO ilcorcm.
Wlcn mcasnring ilc capiial-laor raiio cmooico in US imporis, Lconiicl (193)
oio noi cxaminc ilc lacior inicnsiiy icclniqncs nsco y lorcign inonsirics ilai cx-
porico commooiiics io ilc US. Insicao, lc cxaminco lacior inicnsiiy icclniqncs nsco
y US inonsirics ilai wcrc prooncing impori-compciing commooiiics. Assnming lor-
cign inonsirics nsing ilc samc lacior inicnsiiy icclniqncs as ilc US impori-compciing
inonsirics is valio il ilc lacior pricc cqnalizaiion (FIL) lolos. Howcvcr, a gloal com-
parison rcvcals largc ocviaiions in lacior priccs across connirics.
Jlc assnmpiion ol iocniical lacior inicnsiiy icclniqncs is qncsiionalc. Ncvcrilc-
lcss, ii is vcry oimcnli io rclax ii ccansc ol a lack ol oaia. Jo rclax ilc assnmpiion
ano compnic ilc acinal lacior inicnsiiy icclniqncs applico in oincrcni connirics, oc-
iailco inpni-onipni ialcs ano lacior nsagc oaia arc rcqnirco. Howcvcr, ilcsc oaia
2
arc nnavailalc lor many connirics, cspccially ilc ocvcloping connirics. Noic ilai
oil inpni-onipni ialcs ano lacior nsagc oaia arc rcqnirco. Somc connirics pn-
lisl onc ni noi ilc oilcr. Lvcn lor connirics ilai pnlisl ilcsc oaia, ilc oaia arc
somciimcs noi pnlislco lrcqncnily. Also, somc pnlislco oaia arc ciilcr cxpcnsivc
or noi in saiislaciory lorms ilai arc rcaoily lor nsc in HO analyscs.

Jlis papcr iakcs an alicrnaiivc approacl. Insicao ol collcciing inpni-onipni ialcs

ano lacior nsagc oaia ano compnic ilc acinal lacior inicnsiiy icclniqncs, ilis papcr
nscs an inlcrring mciloo ilai can allow ns io inlcr ilc lacior inicnsiiy icclniqncs ol
oincrcni connirics asco on onr knowlcogc ol ilc US lacior inicnsiiy icclniqncs ano
ilc rclaiivc lacior priccs across connirics. Jlc raiionalc is ilai, wliclcvcr conniry
ilcy arc in, inonsirics will cmploy laciors io a lcvcl sncl ilai ilc marginal raic ol
snsiiiniion in proonciion cqnals ilc rclaiivc lacior pricc in ilai conniry. Jlcrclorc,
y oscrving ilc US lacior inicnsiiy icclniqncs closcn y US inonsirics in rcsponsc io
ilc US rclaiivc lacior priccs, wc slonlo c alc io inlcr ilc lacior inicnsiiy icclniqncs
closcn y oilcr connirics` inonsirics in rcsponsc io oilcr connirics` rclaiivc lacior
priccs.
Lmpirical sinoics alicr Lconiicl`s work lonno ilai ilc paraoox comcs ano gocs
lrom iimc io iimc (c.g., Sicrn ano Maskns, 1981: Jrcncr, 1993). Lcamcr (1980)
ocmonsiraic ilai, in ccriain circnmsianccs, ii is possilc lor a capiial annoani conn-
iry io lavc a liglcr capiial-laor raiio in iis imporis ilan iis cxporis. Noncilclcss,
ilis papcr slows ilai ilc amigniiy ol ilc paraoox ariscs ccansc ilc capiial-laor
raiios cmooico in US imporis ano US cxporis arc vcry closc, ano ilc rcason lor
ilc closc mcasnrco capiial-laor raiio ol US imporis ano US cxporis is ilai ilc US
lacior inicnsiiy icclniqncs arc nsco io compnic ilc capiial-laor raiio cmooico in
US imporis. Jlis papcr slows ilai, il ilc acinal lacior inicnsiiy icclniqncs ol ilc

Somo sluoios hao pul oloils in collocling inpul-oulpul oala whon iovisiling lho HO moool
(o.g. Davis ano Woinsloin, 2001 ano Hakuia, 2001); howovoi, lho counliy samplo lhal pioviooo
inpul-oulpul oala in lhoso sluoios woio moslly iich OLCD counliios. Compaioo wilh lho numLoi
of counliios lhal oxpoil commooilios lo lho US, lho counliy samplo was slill small.
3
sonrcc connirics ol US imporico gooos arc nsco io compnic ilc capiial-laor raiio
cmooico in US imporis, a clcar paiicrn ol ilc paraoox will c oscrvco.
Jlc mcasnrco capiial-laor raiio ol iraoc ol 9 connirics is compnico nsing ilc
inlcrrco lacior inicnsiiy mairiccs. Jlc paraooxcs arc lonno io c ciilcr oisappcarco
or casco. Jlis slows ilai ilc assnmpiion ol iocniical lacior inicnsiiy icclniqncs
plays an imporiani rolc in cansing ilc Lconiicl paraoox.
2 TLo LoontIof aradox
In ilc HO ilcorcm, proonciion lnnciions cxliii consiani rcinrns io scalc. Givcn
ilc rclaiivc lacior priccs, inonsirics will cloosc a sci ol cosi-minimizing lacior inpnis.
Jlc ]n: .nn:.j nn:.. is a mairix ol ioial (oircci plns inoircci) lacior inpni
rcqnircmcnis ol prooncing cacl nnii ol nnal gooo. Lci A
c
c ilc lacior inicnsiiy
mairix ol conniry c. Iis oimcnsion is (1 1), wlcrc 1 is ilc nnmcr ol gooos ano
1 is ilc nnmcr ol laciors. Jlc HO moocl assnmcs ilai all connirics lavc ilc
samc icclnology ano ilc lacior cnoowmcnis ol all connirics lic wiilin ilc conc ol
oivcrsincaiion. As a rcsnli, ilc FIL lolos ano ilc samc lacior inicnsiiy icclniqncs
is slarco y all connirics: A
c
= A. In mosi ol ilc prcvions sinoics, ilc US lacior
inicnsiiy mairix was closcn io c ilc inicrnaiional common mairix: A = A
&c
.
Lci X
cc
c ilc (1 1) vccior ol conniry c`s cxpori io conniry c

. Unocr ilc
assnmpiion ol iocniical lacior inicnsiiy icclniqncs, ilc lacior conicnis ol lacior ) in
conniry c`s cxporis ano imporis arc a
),&c
X
c
ano a
),&c
^
c
, wlcrc X
c
=

c

,c

c
X
cc
,
^
c
=

c

,c

c
X
c

c
, ano a
),&c
is ilc )il row ol A
&c
.
Lconiicl compnico ilc capiial (/) ano laor (|) conicnis ol US cxporis ano US
compciiiivc impori rcplaccmcnis. Hc lonno ilai
a
I,&c
X
&c
a
l,&c
X
&c
<
a
I,&c
^
&c
a
l,&c
^
&c
.
Sincc ii is clicvco ilai ilc US is rclaiivcly annoani in capiial in comparison io
laor, Lconiicl`s nnoings coniraoici ilc HO moocl`s prcoiciion ol ilc lacior iraoc
4
oircciion.
3 OIorontIatod factor IntonsIty tocLnIquo
Jlc assnmpiion ol iocniical lacior inicnsiiy icclniqncs across connirics is snspccico
io c onc ol ilc major rcasons ilai casnco ilc poor pcrlormancc ol ilc HOV moocl.
Connirics will apply ilc samc lacior inicnsiiy icclniqncs only wlcn ilc FIL lolos.
Howcvcr, wlcn wc look aronno ilc worlo, wc scc lngc ocviaiions in ilc lacior priccs
ol varions connirics.
Jalc 1 lisis ilc :|n. lacior priccs ol oincrcni connirics comparco io ilosc
cxpcricncco in ilc US, [(u
l,c
,u
I,c
) , (u
l,&c
,u
I,&c
)[, wlcrc u
),c
is ilc lacior pricc ol
lacior ) in conniry c. In Jalc 1, ilc rclaiivc lacior priccs ol cacl conniry arc
cxprcssco as ilc lacior pricc ol laor occnpaiion caicgory | rclaiivc io ilc lacior
pricc ol capiial /. Iclaiivc lacior priccs arc imporiani ccansc ilcy ocicrminc ilc
cloicc ol lacior inicnsiiy icclniqncs y inonsirics in oincrcni connirics. Il FIL lolos,
all valncs in Jalc 1 slonlo cqnal onc. Howcvcr, y comparing ilc mcan, ilc mcoian,
ano ilc qnariilcs rcsnlis, ii is cviocni ilai many raiios oincrco orasiically lrom onc.
Jlis inoicaics ilai ilc rclaiivc lacior priccs varico signincanily across connirics. Jlc
oincrcnccs in rclaiivc lacior priccs will orivc inonsirics in oincrcni connirics io aoopi
oincrcni lacior inicnsiiy icclniqncs railcr ilan io slarc ilc samc onc.
A simplc iwo-conniry moocl can c nsco io ocmonsiraic ilai, wlcn ilc acinal lac-
ior inicnsiiy icclniqncs arc inocco oincrcniiaico across connirics, assnming iocniical
lacior inicnsiiy icclniqncs will nnocrcsiimaic ilc volnmc ol lacior scrviccs cmooico
in inicrnaiional iraoc.
Snpposc ilcrc arc only iwo connirics, Clina (c:) ano ilc US (n). Clina is
rclaiivcly laor annoani ano ilc US is rclaiivcly capiial annoani. Assnmc ilc
oincrcncc in ilc rclaiivc lacior cnoowmcnis ciwccn ilc iwo connirics is so lngc
ilai ii rcsnlis in a oincrcncc in ilc rclaiivc lacior priccs: u
l,ca
,u
I,ca
< u
l,&c
,u
I,&c
.

Facing a lowcr rclaiivc lacior pricc ol laor, inonsirics in Clina will cloosc lacior
inicnsiiy icclniqncs ilai nsc morc laor ano lcss capiial ilan inonsirics in ilc US in
prooncing cacl nnii ol inonsirial onipni. Jlai mcans, wiil qnasiconcavc proonciion
lnnciions lor all inonsirics, wc lavc ilc lollowing rclaiionslip:
c
li,ca
c
li,&c
ano c
Ii,ca
< c
Ii,&c
i. (1)
wlcrc i is nsco io inocx inonsirics ano c
)i,c
is ilc iil clcmcni ol a
),c
.
In ilis iwo conniry moocl, ^
&c
= X
ca
. Jlc acinal capiial ano laor conicni ol
ilc US imporis slonlo c a
I,ca
^
&c
ano a
l,ca
^
&c
. Wiil ilc rclaiionslip in (1), wc can
casily scc ilai ilc oincrcncc ciwccn ilc capiial-laor raiio cmooico in ilc US cx-
poris ano ilc capiial-laor raiio cmooico in ilc US imporis will c nnocrcsiimaico
il wc assnmc Clina nscs ilc US lacior inicnsiiy icclniqncs:
a
I,&c
X
&c
a
l,&c
X
&c

a
I,&c
^
&c
a
l,&c
^
&c
<
a
I,&c
X
&c
a
l,&c
X
&c

a
I,ca
^
&c
a
l,ca
^
&c
.
Jlis may cxplain wly wc oscrvco ilc Lconiicl paraoox ano wly ii appcarco in
somc iimcs (Lconiicl, 193: Lalowin, 1971) ano oisappcarco in oilcr iimcs (Sicrn
ano Maskns, 1981: Jrcncr, 1993). Wlcn ilc oincrcncc ciwccn ilc capiial-laor
raiio cmooico in US cxporis ano US imporis is consiocraly rconcco, wlcilcr ilc
capiial-laor raiio cmooico in ilc US cxporis is smallcr (paraoox) or largcr (no
paraoox) may simply rcncci ilc innncncc ol oaia mcasnrcmcni crrors.
d EnIrIcaI InvostIgatIons
Ii is wiocly clicvco ilai assnming all connirics applying ilc US lacior inicnsiiy
icclniqncs is nnrcalisiic. Howcvcr, ccansc ol ilc lack ol naiional inpni-onipni ialcs
ano lacior nsagc oaia, ii is noi casy io asscss ilc oincrcni lacior inicnsiiy icclniqncs,
A
c
, aoopico in oincrcni connirics. Jlis papcr aoopis ilc lacior inicnsiiy icclniqnc
inlcrring mciloo snggcsico in Iwok (200). Lasco on ilc US lacior inicnsiiy mairix,
0
A
&c
, ano ilc rclaiivc lacior priccs across connirics, ilc inlcrring mciloo allows ns io
inlcr ilc lacior inicnsiiy mairiccs, A
c
, ol oilcr connirics in ilc worlo.
d.1 InforrIng factor IntonsIty natrIcos
As ocnnco in ilc prcvions scciion, ilc amonni ol lacior ) nsco y inonsiry i in
conniry c io prooncc onc nnii ol onipni is c
)i,c
. Assnmc ilc proonciion lnnciions
Q() arc Co-Donglas:
1 = Q
i
(c
i,c
, c
i,c
, . . . , c
1i,c
) =
i
_
1

l
c
0

li,c
_
,
1

l
0
li
= 1. (2)
Jlc marginal valnc proonci ol lacior / in inonsiry i is j
i,c
0
Ii
c

Ii,c
, wlcrc j
i,c
is ilc pricc
ol commooiiy i in conniry c. Ly cosi minimizaiion, inonsiry i clooscs a cominaiion
ol inpni ol lacior / ano lacior | sncl ilai
u
I,c
u
l,c
=
0
Ii
0
li
_
c
li,c
c
Ii,c
_
, (3)
wlcrc u
),c
is ilc lacior pricc ol lacior ) in conniry c.

Assnmc all connirics arc slaring ilc samc icclnology. Samc icclnology lcrc
mcans ilc valncs ol ilc paramcicrs,
i
ano 0
)i
arc ilc samc across connirics. Jlis
slonlo noi c conlnsco wiil ilc assnmpiion ol iocniical lacior inicnsiiy icclniqncs.
Lvcn il inonsirics in all connirics arc opcraiing nnocr samc proonciion lnnciions, ilcy
can siill cloosc oincrcni lacior inicnsiiy raiios, (c
li,c
,c
Ii,c
). In laci, inonsirics in cacl
conniry will cloosc ilcir own lacior inicnsiiy icclniqncs sncl ilai ilc marginal raic
ol snsiiiniion in proonciion cqnals ilc rclaiivc lacior priccs in ilcir own conniry
(cqnaiion (3)).
Lccansc cqnaiion (3) is irnc lor all connirics, ilc lacior inicnsiiy raiios applico
in conniry c ano ilc lacior inicnsiiy raiios applico in ilc US lavc ilc lollowing
rclaiionslip:
c
Ii,c
c
li,c
=
_
u
I,&c
u
l,&c
__
c
Ii,&c
c
li,&c
__
u
l,c
u
I,c
_
. (4)

Assumo lho facloi piicos in oach counliy aio lho samo acioss inousliios.
7
Lasco on cqnaiion (2), wlcn inonsirics ol oil conniry c ano ilc US arc on ilc
samc nnii isoqnani,
1

l
c
0

li,c
=
1

l
c
0

li,&c
. ()
Lccansc

l
c
0

Ii,c
= c
Ii,c
, wc can rcwriic () as
c
Ii,c
=
1

l
c
0

li,&c
1

l,lI
_
c
Ii,c
c
li,c
_
0

.
Using (4), wc lavc
c
Ii,c
=
1

l
c
0

li,&c
_
_
1

l,lI
_
u
I,&c
u
l,&c
_
0

_
c
Ii,&c
c
li,&c
_
0

_
u
l,c
u
I,c
_
0

_
_
.
Ly rcarranging icrms, wc gci
c
Ii,c
= c
Ii,&c
_
u
I,&c
u
I,c
_
_
_
1

l
_
u
l,c
u
l,&c
_
0

_
_
.
Unocr proni maximizaiion, inonsiry i cmploys lacior | nniil iis marginal valnc proo-
nci cqnals iis lacior pricc. Snsiiinic u
l,c
ano u
l,&c
y corrcsponoing marginal valnc
prooncis ano rcarrangc ilc icrms nsing (), wc can solvc ilc lacior inicnsiiy cocm-
cicni, c
Ii,c
, ol inonsiry i in conniry c:
c
Ii,c
= c
Ii,&c
_
u
I,&c
,j
i,&c
u
I,c
,j
i,c
_
. (0)
Lqnaiion (0) says ilai, wlcn prooncing ilc :nn amonni ol onipnis, ilc raiio
ol lacior / cmployco in conniry c io lacior / cmployco in ilc US is invcrscly rclaico
io ilc raiio ol lacior pricc ol / in conniry c io lacior pricc ol / in ilc US. Jlai is,
il lacior / is rclaiivcly annoani ano las a lowcr lacior pricc in conniry c ilan ilc
US, inonsirics in conniry c will cmploy morc lacior / ilan ilcir US connicrparis in
prooncing ilc samc amonni ol onipni.
Iccall ilai c
Ii,c
ano c
Ii,&c
arc jnsi ilc clcmcnis in ilc lacior inicnsiiy mairiccs
A
c
ano A
&c
: ilcrclorc, nsing cqnaiion (0), wc can solvc lor all clcmcnis in A
c
asco
on onr knowlcogc ol ilc clcmcnis in A
&c
ano ilc cross conniry lacior priccs.
8
d.2 TLo data
Jlc oaia nsco in ilis papcr wcrc pcriainco io 1992.

Jlc US lacior inicnsiiy ma-

irix was compnico nsing ilc US inpni-onipni ialcs ano lacior nsagc oaia lrom
varions inonsirial ano popnlaiion snrvcys pnlislco y ilc US Dcparimcni ol Com-
mcrcc. Facior inicnsiiy mairiccs ol oilcr connirics wcrc inlcrrco nsing ilc lacior
inicnsiiy icclniqnc inlcrring mciloo (cqnaiion (0)). Iroonciion lnnciions ol all in-
onsirics wcrc assnmco io iakc ilc Co-Donglas lorm. Alilongl ilc acinal pro-
onciion lnnciions may noi iakc ilis simplc lorm, wc clicvc ilai ilc lacior inicn-
siiy mairiccs inlcrrco arc siill mncl closcr io ilc acinal lacior inicnsiiy icclniqncs
nsco in oincrcni connirics ilan ilc US lacior inicnsiiy mairix. Jlai is, wc clicvc

c
)i,c
c

)i,c

<<

c
)i,&c
c

)i,c

, wlcrc c
)i,c
is ilc lacior inicnsiiy cocmcicni inlcrrco
ano c

)i,c
is ilc acinal lacior inicnsiiy cocmcicni.
Following Jrcncr (1993), lacior pricc ol capiial was proxico y ilc III-aojnsico
invcsimcni pricc oiainco lrom ilc Icnn Worlo Jalc. Wagcs y occnpaiion wcrc
mainly oiainco lrom ilc Occnpaiional Wagcs aronno ilc Worlo oaiaasc, wlicl
is caliraico y Frccman ano Oosicnoorp (2000) asco on ilc ILO Ociocr Inqniry
oaiaasc.
Jraoc oaia in ilc lorm ol ioial imporis ano cxporis y connirics wcrc oiainco
lrom ilc 1n:nn.nn| J:nn on.:.: `n:h| pnlislco y ilc Uniico Naiions.
Jlc lacior scrviccs cmooico in cxporis wcrc ocrivco oirccily y prcmnliiplying ilc
cxporis oaia wiil ilc lacior inicnsiiy mairix ol ilc cxporiing conniry. Jlc lacior
scrviccs cmooico in imporis wcrc ocrivco y prcmnliiplying ilc imporis oaia wiil
a wciglico avcragc ol lacior inicnsiiy mairiccs ol ilc origin connirics ol ilc imporico
gooos. Jlc wciglis arc proporiional io ilc volnmc ol US imporis lrom ilcsc origin

If lho 1002 oala woio unavailaLlo, lho oala fiom lho yoai lhal is clososl lo 1002 woio aooploo
wilh piopoi aojuslmonls. In lho casos whon oala woio missing foi a couplo of counliios, lho missing
oala woio pioxioo Ly oala of a similai aojaconl counliy wilh suilaLlo aojuslmonls. Soo lho oala
apponoix foi oolails.
9
connirics.
d.3 HosuIts and oxIanatIons
Jlc lacior conicni ol cxporis ano imporis ol 2 connirics wcrc compnico nsing iwo
oincrcni ways. Jlc nrsi onc, wlicl is corrcsponoing io ilc nrsi colnmn ol ialc 2
ano ialc 3, is compnico asco on ilc assnmpiion ol FIL. Jlai is, all connirics arc
assnmco io slarc ilc samc US lacior inicnsiiy icclniqncs. Jlc sccono onc, wlicl is
corrcsponoing io ilc sccono colnmn, is compnico wiiloni ilc assnmpiion ol FIL.
Jlai is, connirics arc nsing oincrcniiaico lacior inicnsiiy icclniqncs. Jlc lacior
inicnsiiy icclniqncs nsco in cacl conniry was inlcrrco nsing ilc inlcrring mciloo
ocscrico in ilc prcvions scciion.
Lasco on ilc inlcrrco lacior conicni ol cxporis ano imporis wiiloni FIL, conn-
irics wcrc oivioco inio iwo gronps. Connirics ilai lavc a liglcr capiial-laor raiio
in ilcir cxporis ilan ilcir imporis arc classinco as ilc capiial scrviccs cxporiing
connirics (ialc 2). Connirics ilai lavc a liglcr laor-capiial raiio in ilcir cxporis
ilan ilcir imporis arc classinco as ilc laor scrviccs cxporiing connirics (ialc 3).
Comparing wiil ilc sccono colnmn, wc can scc ilai ilc valncs in ilc nrsi colnmn
ol ialc 2 ano ialc 3 arc vcry closc io 1. Jlai mcans, nnocr ilc assnmpiion ol FIL,
ilcrc is noi mncl oincrcncc in ilc capiial-laor raiio ciwccn cxporis ano imporis.
Lccansc ilc mcasnrco capiial-laor raiio ol cxporis is so closc io ilc mcasnrco capiial-
laor raiio ol imporis, oaia mcasnrcmcni crrors may oominaic ano, as a rcsnli, wc
oscrvco Lconiicl paraoox lor somc connirics ai somc pcrioos ol iimc in ilc lisiory.
For ilc US, wlcn assnming FIL, ilc raiio ol ilc capiial-laor raiio ol cxporis
io imporis is 1.01. Jlai mcans ilcrc is no Lconiicl paraoox in onr 1992 iraoc oaia.
Lni ilc valnc is siill ioo small in vicw ol ilc US as ilc lcaoing ocvclopco conniry
wiil lngc cnoowmcni ol capiial. Wlcn wc rclaxco ilc assnmpiion ilai connirics
prooncing ilc US imporico commooiiics arc nsing US lacior inicnsiiy icclniqncs,
ilc capiial-laor raiio ol ilc US imporis occrcascs signincanily ano ilc raiio ol ilc
10
capiial-laor raiio ol cxporis io imporis incrcascs almosi lonr iimcs io .00.
Jlongl ilc Lconiicl paraoox is noi oscrvco in ilc US iraoc oaia, ii appcars
in many oilcr connirics. Wlcn assnming FIL, ocvclopco connirics sncl as Japan,
Gcrmany, Francc, Dcnmark, Lclginm, Iialy, ano Spain arc all lonno io c laor
cxporiing connirics wiil ilc capiial-laor raiio cmooico in cxporis smallcr ilan
ilc capiial-laor raiio cmooico in imporis: ocvcloping connirics sncl as Inooncsia,
Mcxico, Colomia, Cosia Iica, Hononras, Lgypi, ano Zimawc arc all lonno io c
capiial cxporiing connirics wiil ilc capiial-laor raiio cmooico in cxporis largcr
ilan ilc capiial-laor raiio cmooico in imporis. Wlcn wc rclaxco ilc assnmpiion ol
FIL, connirics gronpco inio capiial cxporiing connirics ano laor cxporiing connirics
arc asically conlorm io onr clicl.
Wlcn ilc lacior conicni ol cxporis ano imporis is mcasnrco wiiloni ilc FIL
assnmpiion, oil ilc capiial-laor raiios ol capiial cxporiing connirics ano ilc laor-
capiial raiios ol laor cxporiing connirics incrcasc signincanily. Jlis implics ilai
connirics cngagco in ilc worlo iraoc arc iraoing commooiiics wiil oincrcniiaico
lacior inicnsiiics, noi commooiiics wiil similar lacior inicnsiiics.
Oata AondIx
Facior inicnsiiy icclniqncs applico in ilc US wcrc compnico nsing ilc US inpni-
onipni (I-O) ialc ano lacior nsagc oaia. I-O oaia wcrc oiainco lrom ilc 1n|nn:|
1n&-U&& &n: ] | 1n.n on:. 100. 2-oigii I-O oaia, lor wlicl csia-
lislmcnis wcrc gronpco inio 90 inonsirics, wcrc nsco. Alilongl oaia in a nncr 0-oigii
I-O inonsiry classincaiion arc availalc, ilcy wcrc noi nsco ccansc oaia in oilcr clas-
sincaiions wcrc io c convcrico inio I-O classincaiions, ano convcrsions ai nncr lcvcls
arc noi rclialc. Dircci capiial inpni is ilc iangilc wcalil csiimaics provioco y
ilc Lnrcan ol Lconomic Analysis (LLA). As ilc inonsiry classincaiions ol ilc LLA
csiimaics arc noi ociailco cnongl (cqnivalcni io 2-oigii SIC lcvcl only), asscis oaia
provioco y Lnrcan ol ilc Ccnsns ano ilc Inicrnal Icvcnnc Scrvicc wcrc nsco io
11
proraic ilc LLA csiimaics io ociailco SIC lcvcls. Jlc oaia wcrc ilcn convcrico inio
I-O coocs nsing ilc concoroancc provioco in ilc 1n|nn:| 1U &n:. Dircci
laor inpni is ilc laor cmploymcni y occnpaiion in cacl inonsiry cxiracico lrom
ilc &::n 1&|n.n o&:j. Icrsonal oaia nnocr 3-oigii CIS inonsiry cooc ano
occnpaiion major rccooc wcrc aoopico. Jlcy wcrc nrsi convcrico inio SIC, ano ilcn
inio I-O classincaiions. Lmploymcni oaia pnlislco in corrcsponoing inonsiry ano
govcrnmcni ccnsnscs, wlicl arc noi oivioco inio oincrcni occnpaiions, wcrc nsco as
wciglis il nccoco.
Facior pricc ol capiial is ilc 1992 III-aojnsico invcsimcni pricc inocx oiainco
lrom ilc Icnn Worlo Jalc Mark .0 ano 0.0 (IWJ). Facior pricc ol laor y occn-
paiion is mainly ilc asc caliraiion wiil lcxicograplic wcigliing oiainco lrom ilc
Occnpaiional Wagcs aronno ilc Worlo (OWW) oaiaasc. Lxclangc raics lrom ilc
IMF wcrc nsco io convcri ilc wagc raics ol all connirics inio US oollar. Sincc ilc
raiio ol wagc raics ciwccn oilcr connirics ano ilc US is nccoco, wc ncco wagc raic
oaia ol ilc samc occnpaiion in oil ilc US ano ilc conniry in conccrn. Il ilcrc is
no maicling occnpaiion, ilc raiio ol wagc raics ciwccn ilc conniry in conccrn ano
Gcrmany, wlicl las morc ociailco occnpaiional wagc oaia ilan ilc US, was iakcn.
Jlc raiio was ilcn mnliiplico wiil ilc raiio ol wagcs raics in ilc samc ISCO gronp
ciwccn Gcrmany ano ilc US io gci ilc raiio ciwccn ilai conniry ano ilc US. Il
wagc raics ol a pariicnlar ISCO gronp arc noi availalc, ilc raiio ol anoilcr ISCO
gronp ilai is closc io ilai gronp was nsco. For connirics ilai wagcs wcrc nnavailalc
in ilc OWW, ilcir wagcs wcrc proxico y ilc wagcs ol a similar aojaccni conniry
aojnsico io ciilcr ilc wagcs in mannlacinring (lrom ilc Inicrnaiional Laonr Omcc
(ILO) oaiaasc) or ilc III-aojnsico GDI pcr capiia (lrom ilc IWJ). Ii slonlo
c noico ilai ilc wagc oaia ol oincrcni connirics collccico in ilc ILO arc noi asco
on ilc samc working iimc lorizon, lonrly raics ano oaily raics wcrc mnliiplico wiil
csiimaico working lonrs pcr monil ano working oays pcr monil rcspcciivcly.
Jraoc oaia wcrc oiainco lrom issncs ol 1n:nn.nn| J:nn on.:.: `n:h|.
12
Lccansc ilc commooiiy iraoc oaia arc pnlislco ai oincrcni oigii lcvcls ol SIJC,
ilc commooiiy iicms pnlislco in ilc J:nn `n:h| arc noi mninally cxclnsivc.
Dincrcnccs ciwccn cvcry iwo oincrcni lcvcls ol aggrcgaiion wcrc iakcn io gci iraoc
oaia ol mninally cxclnsivc commooiiy classincaiions. Jlc iraoc oaia arc in SIJC
rcv.2. Jlcy wcrc nrsi convcrico inio SIJC rcv.3. Jlc concoroancc ciwccn SIJC
rcv.2 ano SIJC rcv.3 was consirncico nsing ilc concoroancc ol 10-oigii HS io -
oigii SIJC rcv.2 ano ilc concoroancc ol 10-oigii HS io -oigii SIJC rcv.3, wlicl arc
collccico y Jon Havcman lrom ilc NLLI Jraoc Daia CD. Jlc oaia nnocr SIJC
rcv.3 wcrc ilcn convcrico inio SIC nsing ilc concoroancc provioco in ilc 1.o. 1.::
1.::j CDIOM. Finally, ilc iraoc oaia wcrc convcrico inio IO classincaiions.
Hoforoncos
[1[ Lowcn, Harry I.: Lcamcr, Lowaro L.: ano Svcikanskas, Lco, Mnliiconniry, Mnl-
iilacior Jcsis ol ilc Facior Annoancc Jlcory. Amcrican Lconomic Icvicw,
Dcccmcr 1987, 77(), pp. 791-809.
[2[ Davis, Donalo I. ano Wcinsicin, Davio L., An Acconni ol Gloal Facior
Jraoc. Amcrican Lconomic Icvicw, Dcccmcr 2001, 91(), pp. 1423-143.
[3[ Davis, Donalo I.: Wcinsicin, Davio L.: Lraoloro, Scoii C.: ano Slimpo,
Iaznsligc, Using Inicrnaiional ano Japancsc Icgional Daia io Dcicrminc
Wlcn ilc Facior Annoancc Jlcory ol Jraoc Works. Amcrican Lconomic Ic-
vicw, Jnnc 1997, 87(3), pp. 421-440.
[4[ Lsicvaocoroal, Anioni ano Jaylor, Alan M., A Ccninry ol Missing Jraoc
Amcrican Lconomic Icvicw, Marcl 2002, 92(1), pp. 383-393.
[[ Frccman, Iiclaro L. ano Oosicnoorp, Icmco H., Wagcs Aronno ilc Worlo:
Iay Across Occnpaiions ano Connirics, NLLI Working Iapcr No. 808, Dc-
ccmcr 2000.
13
[0[ Haknra, Dalia S., Wly Docs HOV Fail Jlc Iolc ol Jcclnological Dincrcnccs
wiilin ilc LC. Jonrnal ol Inicrnaiional Lconomics, Angnsi 2001, 4(2), pp.
301-382.
[7[ Hclpman, Lllanan, Jlc Sirncinrc ol Forcign Jraoc. Jonrnal ol Lconomic Icr-
spcciivcs, 13(2), Spring 1999, pp. 121-144.
[8[ Iwok, Ynn-kwong, Gloal lacior iraoc wiil oincrcniiaico lacior priccs ano
lacior inicnsiiics. Mimco, Dcakin Univcrsiiy, Ansiralia, 200.
[9[ Lcamcr, Lowaro L., Sonrccs ol Inicrnaiional Comparaiivc Aovaniagc: Jlcory
ano Lviocncc, Camriogc, MA: MIJ Ircss, 1984.
[10[ Lcamcr, Lowaro L. ano Lcvinsoln, Jamcs, Inicrnaiional Jraoc Jlcory: Jlc
Lviocncc. in Gcnc Grossman ano Icnncil Iogon, cos., Hanoook ol Inicrna-
iional Lconomics, Vol. 3, Amsicroam: Noril-Hollano, 199, pp. 1339-94.
[11[ Lconiicl, Wassily W., Domcsiic Iroonciion ano Forcign Jraoc: Jlc Amcrican
Capiial Iosiiion Ic-cxaminco. Irocccoings ol ilc Amcrican Ililosoplical So-
ciciy, Scpicmcr 193, 97(4), pp. 332-49. Icprinico in Iiclaro L. Cavcs ano
Harry G. Jolnson, Icaoings in Inicrnaiional Lconomics, Homcwooo, Ill.: Irwin,
1908.
[12[ Maskns, Iciil L., A Jcsi ol ilc Hccksclcr-Ollin-Vanck Jlcorcm: Jlc Lconiicl
Commonplacc. Jonrnal ol Inicrnaiional Lconomics, 19, Novcmcr 198, pp.201-
12.
[13[ Snmmcrs, Iocri ano Hcsion, Alan, Jlc Icnn Worlo Jalc (Mark ): An
Lxpanoco Sci ol Inicrnaiional Comparisons, 190-1988. Qnaricrly Jonrnal ol
Lconomics, 100, May 1991, pp. 327-08.
[14[ Jrcncr, Danicl, Inicrnaiional Facior Iricc Dincrcnccs: Lconiicl was Iigli!
Jonrnal ol Ioliiical Lconomy, Dcccmcr 1993, 101(0), pp. 901-87.
14
[1[ Jrcncr, Danicl, Jlc Cascs ol ilc Missing Jraoc ano Oilcr Mysicrics. Amcrican
Lconomic Icvicw, Dcccmcr 199, 8(), pp. 1029-1040.
[10[ U.S. Dcparimcni ol Commcrcc, Lnrcan ol Lconomic Analysis, Lconomics ano
Siaiisiics Aominisiraiion, Lcnclmark Inpni-Onipni Acconnis ol ilc Uniico
Siaics, 1992. Waslingion, DC: U.S. Govcrnmcni Iriniing Omcc, Scpicmcr 1998
[17[ Vanck, Jaroslav, Jlc Facior Iroporiions Jlcory: Jlc N-Facior Casc. Iyklos,
Ociocr 1908, 21(4), pp. 749-0.
1
16
Table 1: Relative Factor Prices Relative to the US
[(w
l,c
/ w
k,c
) / ( w
l,us
/ w
k,us
)]

Labor by occupation in ISCO-1968
Countries 0/1 3 4 5 6 7/8/9

Algeria 0.08 0.11 0.13 0.16 0.20 0.12
Argentina 0.33 0.24 0.39 0.33 0.28 0.43
Australia 0.92 1.18 1.28 1.36 1.01 1.33
Austria 0.98 0.99 0.66 0.75 0.94 0.82
Bangladesh 0.05 0.05 0.04 0.05 0.07 0.04
Belgium 0.58 1.09 1.01 1.01 1.37 1.31
Brazil 0.46 0.33 0.33 0.41 0.32 0.24
Bulgaria 0.07 0.15 0.14 0.14 0.23 0.15
Canada 1.43 1.20 1.58 1.58 1.26 1.26
Chile 0.77 0.25 0.42 0.18 0.46 0.46
China 0.04 0.09 0.10 0.09 0.05 0.05
Colombia 0.38 0.15 0.16 0.22 0.19 0.20
Costa Rica 0.12 0.14 0.25 0.24 0.25 0.13
Cyprus 0.90 1.09 0.76 1.22 0.86 1.02
Czech Republic 0.13 0.20 0.26 0.31 0.23 0.23
Denmark 0.83 1.10 1.18 1.71 0.87 0.97
Dominican Rep. 0.12 0.09 0.10 0.20 1.00 0.15
Ecuador 0.36 0.15 0.15 0.21 0.18 0.19
Egypt 0.05 0.08 0.07 0.09 0.06 0.05
EI Salvador 0.07 0.09 0.15 0.15 0.15 0.08
Finland 0.83 0.99 1.17 1.31 1.09 1.31
France 0.93 0.59 0.97 0.86 1.06 0.99
Germany 1.24 0.79 1.29 1.14 1.40 1.32
Greece 0.53 0.34 0.55 0.49 0.60 0.56
Guatemala 0.07 0.08 0.14 0.14 0.14 0.07
Honduras 0.19 0.14 0.20 0.12 0.13 0.10
Hong Kong 0.42 0.86 0.50 0.70 0.94 0.94
Hungary 0.19 0.15 0.24 0.27 0.23 0.14
India 0.11 0.11 0.05 0.06 0.05 0.14
Indonesia 0.25 0.27 0.13 0.25 0.10 0.10
Iran 0.32 0.37 0.53 0.53 0.40 0.32
Ireland 1.00 1.14 0.85 1.14 1.19 1.09
Israel 0.73 0.47 0.77 0.67 0.83 0.78
Italy 0.90 1.29 1.15 1.44 1.22 1.42
Japan 1.45 0.72 0.69 1.35 1.99 1.11
Korea 0.86 0.70 0.81 0.95 0.83 0.83
Malaysia 0.11 0.23 0.23 0.22 0.12 0.22
Mexico 0.22 0.25 0.20 0.27 0.29 0.25
Morocco 0.11 0.17 0.15 0.19 0.13 0.11
Netherlands 0.74 0.74 1.23 1.23 1.22 1.04
New Zealand 1.08 1.10 0.92 1.10 0.74 1.10
Nigeria 0.08 0.02 0.04 0.04 0.01 0.02
Norway 0.61 1.23 1.29 1.22 1.08 0.82
Pakistan 0.17 0.17 0.07 0.10 0.08 0.23
Panama 0.75 0.31 0.32 0.43 0.37 0.40
Paraguay 0.43 0.11 0.42 0.20 0.49 0.49


17
Table 1: Relative Factor Prices Relative to the US (cont.)

Labor by occupation in ISCO-1968
Countries 0/1 3 4 5 6 7/8/9

Philippines 0.10 0.21 0.21 0.20 0.11 0.20
Poland 0.21 0.31 0.33 0.41 0.38 0.21
Portugal 0.65 0.60 0.45 0.48 0.47 0.42
Romania 0.10 0.10 0.14 0.16 0.21 0.12
Singapore 1.33 0.73 0.81 0.65 0.54 0.54
Slovenia 0.29 0.49 0.58 0.66 0.65 0.35
South Africa 0.88 0.31 0.78 0.31 0.23 0.25
Spain 1.05 0.67 1.10 0.97 1.19 1.12
Sri Lanka 0.05 0.09 0.05 0.09 0.04 0.04
Sweden 0.49 1.17 1.34 1.34 1.38 1.17
Switzerland 1.37 0.87 1.43 1.26 1.55 1.46
Syria 0.26 0.26 0.26 0.26 0.26 0.26
Taiwan 0.58 0.47 0.54 0.63 0.56 0.56
Thailand 0.47 0.49 0.24 0.46 0.18 0.18
Trinidad 0.45 0.49 0.21 0.24 0.41 0.53
Tunisia 0.11 0.17 0.16 0.20 0.13 0.12
Turkey 0.39 0.71 0.33 0.33 0.78 0.78
UK 1.09 1.24 0.92 1.23 1.29 1.18
Uruguay 0.66 0.18 0.66 0.32 0.76 0.76
USA 1.00 1.00 1.00 1.00 1.00 1.00
USSR, Former 0.03 2.06 1.72 1.87 3.43 0.10
Venezuela 0.19 0.25 0.14 0.16 0.14 0.23
Zimbabwe 0.60 0.22 0.53 0.22 0.16 0.17

Mean 0.51 0.51 0.55 0.58 0.62 0.54
St. Dev. 0.40 0.43 0.45 0.49 0.58 0.45
(1 - Mean)/SD 1.21 1.13 1.01 0.85 0.66 1.04
Median 0.43 0.31 0.42 0.33 0.41 0.35
(1 - Median)/SD 1.42 1.58 1.31 1.36 1.01 1.44
1st Quartile 0.12 0.15 0.16 0.20 0.18 0.15
(1 - 1st Q)/SD 2.18 1.94 1.89 1.62 1.41 1.91
3rd Quartile 0.83 0.79 0.85 1.00 1.00 0.97
(1 - 3rd Q)/SD 0.41 0.49 0.34 0.00 0.00 0.06

Sources: Following Trefler (1993), factor price of capital was proxied by the PPP-adjusted
investment price obtained from the Penn World Tables. Wages by occupation were estimated
based on the Occupational Wages around the World database calibrated by Freeman and
Oostendorp (2000), the LABORSTA database by International Labor Office, and the GDP per
capita from the Penn World Tables.
Notes: Occupations are classified by International Standard Classification of Occupations ISCO-
1968. Class 0/1 is professional and technical workers; class 3 is clerical workers; class 4 is sales
workers; class 5 is service workers; class 6 is agriculture and forestry workers, fishermen and
hunters; and class 7/8/9 is production workers, transportation equipment operators, and laborers.

18
Table 2
Ratios of Exported Factor Services to Imported Factor Services:
Capital Services Exporting Countries

FPE No FPE
Countries ( )
( )
IM
EX
L K
L K
/
/

( )
( )
IM
EX
L K
L K
/
/

Difference in %

Hong Kong 0.86 8.12 841.22
Australia 1.50 7.17 379.00
Finland 1.01 5.60 456.15
USA (+Puerto Rico) 1.01 5.00 396.53
Norway 1.83 4.63 153.50
Japan 0.71 4.47 528.12
Germany 0.96 3.93 308.28
Canada 1.21 3.62 199.06
Italy 0.78 3.61 360.36
Spain 0.96 3.57 273.94
New Zealand 1.07 3.17 195.51
Sweden 1.04 3.03 190.65
France 0.96 2.91 201.98
Belgium (+Luxemburg) 0.99 2.88 189.02
Netherlands 1.09 2.85 162.18
UK 1.03 2.84 175.15
Singapore 0.96 2.81 194.47
Switzerland 1.01 2.67 163.55
Korea 0.67 2.64 292.00
Denmark 0.95 2.63 176.92
Austria 0.99 2.52 155.18
Turkey 0.70 2.09 196.83
Ireland 1.00 2.01 101.36
Greece 0.92 1.57 70.26
Uruguay 0.82 1.43 74.77
Panama 1.05 1.21 15.41
Poland 0.91 1.21 32.91
Slovenia 0.77 1.04 35.91
Portugal 0.76 1.00 31.53


19
Table 3
Ratios of Exported Factor Services to Imported Factor Services:
Labor Services Exporting Countries

FPE No FPE
Countries ( )
( )
IM
EX
K L
K L
/
/

( )
( )
IM
EX
K L
K L
/
/

Difference in %

Bangladesh 2.18 7.61 249.52
China 1.36 6.07 347.68
Sri Lanka 1.60 6.04 278.22
EI Salvador 1.15 4.71 308.80
Guatemala 1.07 3.80 256.06
Egypt 0.73 3.32 352.90
Tunisia 1.20 3.26 172.53
India 1.66 3.15 89.39
Indonesia 0.93 2.36 153.06
Mexico 0.86 2.34 171.66
Honduras 0.95 2.30 142.81
Philippines 1.28 2.20 72.29
Morocco 1.21 2.19 80.86
Costa Rica 0.97 2.10 114.99
Pakistan 1.68 1.80 6.84
Colombia 0.89 1.77 99.70
Romania 1.28 1.76 37.57
Zimbabwe 0.95 1.76 85.02
Malaysia 1.03 1.76 70.29
Thailand 1.33 1.41 5.97
Brazil 1.11 1.28 15.13
South Africa, C.U. 0.78 1.11 41.17
Paraguay 0.93 1.01 8.59