FACTOR ENDOWMENTS AND THE INTERNATIONAL LOCATION OF PRODUCTION - ECONOMETRIC EVIDENCE FOR THE OECD, 1970-1985

This paper uses data on manufacturing output and factor endowments for 20 OECD countries from 1970 to 1985 to examine the production side of the factor proportions model. Under well-known conditions, there will be a linear Rybczynski relationship between sectoral outputs and factor endowments across countries. This proposition is investigated, using the Kalman filter and maximum likelihood techniques to estimate time-varying parameter models. The results indicate that capital and unskilled labor are sources of comparative advantage for most industries, while skilled labor is a source of comparative disadvantage. Residual analysis shows that the neoclassical model has poor explanatory power.