Output Quality, Skill Intensity, and Factor Contents of Trade: An empirical analysis based on microdata of the Census of Manufactures

Using factory-level data for Japan's manufacturing sector, we estimate the relationship between the unit values of gross output and factor intensities. We find a significant and positive relationship between the unit value of a product and its white-collar labor intensity, which supports the assumption widely used in theoretical models that commodities with higher prices are of higher quality and more human capital-intensive. However, the relationship between the unit value of a product and its capital intensity is not always positive, and is significantly negative in some sectors. Using the results of the relationship between unit values and factor intensities, we also estimate the factor contents of Japan's trade, taking account of differences in the unit values of exports and imports. We find that the number of non-production workers and the capital stock embodied in Japan's net exports are under-estimated when differences in unit values are not taken into account.