We also want to thank Pao-Li Chang for excellent research assistance. Do Factor Endowments Matter for

The dominant paradigm of world trade patterns posits two principal features. Trade between North and South arises due to traditional comparative advantage, largely determined by differences in endowment patterns. Trade within the North, much of it intra-industry trade, is based on economies of scale and product differentiation. The paradigm specifically denies an important role for endowment differences in determining North-North trade. This paper provides the first sound empirical examination of this question. We demonstrate that trade in factor services among countries of the North is systematically related to endowment differences and large in economic magnitude. Intra-industry trade, rather than being a puzzle for a factor endowments theory, is instead the conduit for a great deal of this factor service trade. 1 See the seminal papers of Krugman (1979) and Lancaster (1980). 2 These observations about trade patterns were offered specifically to motivate a move to the new trade theory view which could account for these facts even among countries with identical endowments. Krugman (1980) also appealed to one element apart from trade patterns: an apparent absence of substantial distributional impact of trade reform