Tuesday, August 04, 2009

Heaven Knows, Anything Goes

In a very cool paper (ungated version here), Opp, Sonnenschein & Tombazos show that in the textbook Hecksher-Olin world (two goods, two factors of production, and two countries) it is possible to produce a "reverse Rybczynski" effect, simply by assuming that consumers in each country have a preference for the exportable good.

By "reverse Rybczynski", they mean a situation where increases in the supply of the factor of production used intensively in the production of a good produce a decline in the output of that good.

Or as they put it, "immizerizing factor growth".

After reading the piece I was left with two questions.

1. Is there any important proposition in Trade theory that can be proven in general?

2. What does this result mean for work based on the Rajan-Zingales index? Their classic piece and a host of follow up papers all assume that variations in output elasticities across industries are perfectly correlated with variations in input intensities across industries.


Gabriel said...

If you really want to go "general" then, sooner or later, you run into Sonnenschein-Mantel-Debreu Theorem which I take to mean the nonexistence of well behaved comparative statics (maybe I'm wrong).

Anyway, the number of issues with the H.O. S/V model is already huge so +1 shouldn't change its overall use to the profession much :-(

Angus said...

Which leaves me to wonder, why is trade a respectable field in economics? Why do economists make so many dogmatic statements about trade that cannot actually be proven in any generality?