14 members. In addition, two other statistics are given. First, the 1988 regional orientation index is shown along with the 1988-94 index change. The intention here is to indicate the extent to which a reorientation of trade toward the region contributed to each product's dynamism. Second an estimate of each product's _relative_ labor (capital) intensity in production is also given.'<sup>0</sup> This index was drawn from a World Bank study and takes a value of 100 for products whose labor intensity is average relative to all manufacturing activity, while increasing values above this level identify goods that are more capital intensive in production (conversely, the index will decline below 100 for products that are increasingly labor intensive). Since economic theory holds that developing countries do not have a comparative advantage in capital intensive goods the table attempts to determine whether trade has been distorted in this direction. it

# '°The factor intensity for industry j (Lj) is defned as,

(4) _L)j_ = (Vj - Nj) - (Vt _+Nt)-_ 100 where Vj and V, represent value added in industry j and all US manufacturing respectively, while Nj and N, represent the number of workers in the industry and all manufacturing activity. Two points should be noted. First, studies by the National Bureau of Economic Research (Lary 1968) show that products manufactured by labor intensive processes in the U.S. are also manufactured by relatively labor intensive processes in other countries, although, quite clearly, the levels of use may differ. On this basis Lary justified the use of US Census of Manufactures data for computation of the index. Second, the reader should note that there is an inverse relation between the numeric value of the index and the labor intensity of a given product. That is, the lower the numeric value the higher the labor intensity. See Yeats (1989) for details concerning the computation of the index and the results reported in Table 4.

"Comparative advantage explanations of the composition of trade between developed and developing countries generally focus on factor proportions. That is, countries with a relative abundance of low cost labor should export "labor intensive" products to countries where capital is relatively abundant. Empirical tests by Lary (1968), Tuong and Yeats (1975), and Yeats (1989) confirm the accuracy of factors proportions as a predictor of trade flows. Although theory is less conclusive in explaining the composition of trade between developing countries (Deardorff 1982), the question of how exports of capital intensive goods from one developing country to another can compete with exports from industrial countries has often been raised. Dongues (1987) concludes that preferential trade arrangements among developing countries foster this exchange. Havrylyshyn (1987) and Havrylyshyn and Wolf (1987) also indicate that domestic and trade policy distortions promote these exports while Corbo and Meller conclude that "distortive trade and production policies increase the production of more capital intensive goods for export to other developing countries". Second, although countries may import capital intensive goods from industrial countries and labor intensive goods from developing countries nearly all models suggest exports will be concentrated in one part of the factor intensive spectrum.