Testing the Heckscher-Ohlin-Vanek model using spanish regional data

Abstract

We study the Heckscher-Ohlin-Vanek (HOV) model of trade empirically using regional data rather than country data. Our findings for the Spanish regions suggest that the HOV model performs remarkably well after relaxing the “strict” assumptions of world factor price equalisation and world identical and homothetic preferences. We also test whether Spanish regions share the same production techniques. Allowing for productivityadjusted factor price equalisation across regions or regional-specific input-output matrices contributes very little to improve the predictive capacity of the HOV model, suggesting that the state of technology and choice of techniques is quite similar across Spanish regions.