Multi-factor, multi-country testing of the Heckscher-Ohlin theorem without factor price equalization: A critical view

• The paper discusses possible empirical evidence in favour of the Heckscher-Ohlin theorem in data collected in the world input-output database (2016 release). • Analysing the data, it is found that the capital and skills content of trade is only weakly correlated with countries’ factor abundance. • The correlation between the factor content of trade and factor abundance is weaker when factor use is adjusted for relative factor efficiency and when the level of disaggregation by industry increases. • Paradoxically, this is not the case for the energy and emissions content of trade. Several recent empirical studies conclude that there is evidence in favour of a version of the Heckscher-Ohlin theorem that dispenses with the assumption of factor price equalization. However, many of these studies base their conclusions on small data sets, relating to one or two factors and a not very high level of disaggregation by industry. Moreover, the studies do not always take into account international differences in factor efficiency. In the present study, the Heckscher-Ohlin model is tested by considering data available in the World Input-Output Database (2016 release) for 7 factors, 56 industries and 40 countries plus a composite ‘country’ comprising the rest of the world, and by measuring factor use in efficiency units. Analysing this data sample, it is found that the capital and skill content of trade is only weakly correlated with countries’ factor abundance. This correlation is weaker when international differences in factor use are adjusted for relative factor efficiency and when the level of industry disaggregation increases. Paradoxically, this is not the case for the energy and emissions content of trade.