Similarly, we are able to examine the absorption model directly on the relevant data. Having selected the best models of international technology differences and absorption patterns, we then impose the estimates on the data on production and trade. We show step by step how the introduction of our principal hypotheses yield corresponding improvements in measures of model fit. The result is a very striking confirmation of the HOV theory, suitably amended. Various checks for robustness yield a common conclusion.
Countries export their abundant factors and they do so in approximately the right magnitude.
The most exciting feature of this paper is the simple and unified picture it draws of the global economy. The departures from the standard theory are simple, plausible, and confirmed directly in the relevant data. And they allow the amended model of factor service trade to match the international data surprisingly closely. 6785, November 1998. Davis is a Research Associate in the NBER's Program on International Trade and Investment and a Professor of Economics at Columbia University.