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WEB: CH. 4, Salvatore's Introduction To International Economics, 3 Ed

This document analyzes the factor intensity of trade for various countries in 2008 based on their relative factor endowments. It finds that while the trade of most large developed and developing countries broadly followed predictions based on factor endowments, there were some important exceptions. For example, the US had trade surpluses in skilled labor-intensive goods but deficits in others, and imports more capital goods than expected. Japan exported more skilled labor goods but imported more aircraft. China exported low-skill goods but imported chemicals and autos against expectations.

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49 views

WEB: CH. 4, Salvatore's Introduction To International Economics, 3 Ed

This document analyzes the factor intensity of trade for various countries in 2008 based on their relative factor endowments. It finds that while the trade of most large developed and developing countries broadly followed predictions based on factor endowments, there were some important exceptions. For example, the US had trade surpluses in skilled labor-intensive goods but deficits in others, and imports more capital goods than expected. Japan exported more skilled labor goods but imported more aircraft. China exported low-skill goods but imported chemicals and autos against expectations.

Uploaded by

Rimeh Bakir
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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WEB: CH. 4, Salvatore’s Introduction to International Economics, 3nd Ed.

2. The Factor Intensity of Trade of Various Countries

We now look at trade data for the year 2008 to determine the factor intensities of the net exports of
the various countries examined in Case Study 4-1 in the text that show that their trade broadly
corresponded to their relative factor endowments.

United States: In 2008, the United States had a net export surplus in products intensive in R&D and other
highly skilled labor (such as chemicals other than pharmaceuticals, aircrafts, integrated circuits, power
generating and nonelectrical machinery, and scientific and controlling instruments), and a net import surplus in
some natural resource products (such as fuels), and products intensive in unskilled labor (such as textiles,
clothing, and personal and household goods). These correspond to the broad relative factor endowments of the
United States and conform to the predictions of the H-O theory. On the other hand, the United States had a net
trade deficit in other products intensive in R&D and highly-skilled labor, such as pharmaceuticals, and office
and telecommunications equipment, when we would have expected the United States to be a net exporter of
these products. The United States was also a large net import of some capital-intensive products (such as iron
and steel, and automotive products), in which we would have expected its trade to be more or less balanced.
Japan: Japan had a large net export surplus in capital-intensive products and products intensive in R&D and
other highly skilled labor (such as automotive products) and a very large net import surplus in products
intensive in natural resources and unskilled-labor (such as agricultural products, fuels and clothing) – as
expected from Japan’s relative factor endowments. On the other hand, Japan had large net imports surplus of
commercial aircrafts.
European Union: As predicted by its relative factor abundance, the European Union (EU-27) had a net export
surplus in capital-intensive products and in products intensive in R&D and other highly skilled labor, and a net
import surplus in agricultural products, fuels and mining products, textiles and clothing, and personal and
household goods. But the EU had also a large net import surplus in office and telecom equipment, which is not
in conformity with its relative abundance of R&D and other highly-skilled labor.
Canada: Canada’s trade was dominated by a very large net export surplus in agricultural products and fuels and
mining products, and a large net import surplus of products intensive in unskilled labor – as predicted by its
relative factor endowments. Contrary to its relative abundance, however, Canada had a net import surplus in
almost all other capital and skill-intensive products, except for automotive products.
China: As predicted by its relative factor endowments, China had a large import surplus in agricultural, fuel
and mining products, and a large export surplus, in iron and steel, transport equipment other than automotive,
and in office and telecom equipment, electrical machinery, textiles, clothing and personal and household
goods. Contrary to its relative factor endowments, however, China had net import surplus in chemicals other
than pharmaceuticals, integrated circuits, automotive products.
Other countries: As for the other countries examined above, the trade of India, Russia, Brazil, Korea and
Mexico, reflected to a large extent their relative factor endowments, but with some major exceptions.

In summary, we can say that a great deal of the trade of most of the largest developed and developing
countries took place as predicted by the factor endowment (H-O theory), but there were some
important exceptions.
____________
Source: WTO, International Trade Statistics (Geneva: 2010).

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