Essays on the international location of production and trade in factor services.

This dissertation contains three empirical investigations that use new data on factor endowments and factor requirements from developing countries. These data provide valuable new insights into the patterns of international trade and production. They also allow for a more precise examination of why Heckscher-Ohlin-Vanek (HOV) models fail to predict observed trade patterns. The Back to Basics chapter examines six HOV tests from the literature. While the additional data do nothing to improve specifications that impose factor-price equalization or its variants, they do improve performance of all specifications that allow factor requirements to vary by country (e.g., the volume of trade rises between 39 and 247 percent). As in the literature, capital outperforms labor; however, this is corrected by the adjustment for traded intermediate goods in Trefler and Zhu (2000, 2005). Despite the improvements, factor abundance still predicts considerably more trade than is observed for every factor. The Usual Suspects chapter examines several causes of this missing trade. It employs new data on the factors embodied in all elements of gross output, including absorption (by consumers and government, and by firms), nontraded goods, investment, and trade. Using a specification based on Trefler (1996), we determine to what extent each of these elements violates assumptions of the HOV theorem, and to what extent each is responsible for the failure of HOV. For example, of the 80% of predicted trade that is missing from trade data, factors embodied in investment account for 10 percentage points and factors used in consumption goods account for about 45 percentage points. Forward and Backward Linkages and the Location of International Production, examines the implications of an increase in national GDP on the international location of production by industry in a standard economic geography model. This paper shows theoretically that in a world with multiple manufacturing sectors, as a nation's GDP increases, the outputs of manufacturing industries with strong ties to other manufacturing increase more than proportionally (consistent with standard home-market effects), but the outputs of manufacturing industries with weaker ties must decline. Cross-section regressions of 45 international regions and 23 manufacturing industries support these conclusions.PhDEconomicsGeographySocial SciencesUniversity of Michigan, Horace H. Rackham School of Graduate Studieshttp://deepblue.lib.umich.edu/bitstream/2027.42/125476/2/3192755.pd