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

Assaf Zimring
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Assaf Zimring: Cornerstone Research

No 15-243, Upjohn Working Papers from W.E. Upjohn Institute for Employment Research

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) mode 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 larger influx of returning commuters shifted production more towards 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.

Keywords: Heckscher-Ohlin; factor prices; Rybczynski effect; international trade; natural experiment; West Bank (search for similar items in EconPapers)
JEL-codes: F11 F16 J31 (search for similar items in EconPapers)
Date: 2015-11
New Economics Papers: this item is included in nep-int and nep-lma
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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