Essays on OECD trade patterns

We live in a world with two principal characteristics: (i) capital has always been mobile across national borders, and has become more so in recent years; (ii) while the rental rates of capital have begun to converge across countries, labor cost differences continue to be significant. To study such an environment, the appropriate theoretical framework in international economics is the Kemp-Jones model. To our knowledge, there has not been much empirical research in this area. This dissertation is an effort to explore such possibilities.; The first chapter, entitled “An Empirical Investigation of Comparative Advantage among OECD Countries,” analyzes Harrod technology differences across countries, which are the measures of comparative advantage according to the Kemp-Jones model. The comparative advantage index, which measures Harrod technology differences between pairs of countries, is computed for 10 sectors (at 2-digit classification of ISIC) for 14 OECD countries between 1970–92. The index can be fully characterized by Hicks-neutral technology differences if the labor inputs are fully mobile across sectors. We find that the index is indeed largely characterized by Hicks-neutral technology differences across countries in the case of labor-intensive good sectors, but to a lesser extent in the case of capital-intensive good sectors.; The second chapter, entitled “The Imperfect Substitution of Goods Traded among OECD Countries,” aims to investigate the sensitivity of trade patterns for a change in the comparative advantage index; the sensitivity depends on the substitutability of goods produced in different countries. For this purpose, the sector-specific elasticities of substitution (or technical substitution) are estimated. In the consumer good sectors , we tend to find highly standardized domestic products and highly specialized imported goods (in terms of uniqueness); in the producer good sectors, however, we tend to find highly standardized imported products and highly specialized domestic products.; The third chapter, entitled “The Determinants of FDI: The Case of the Baltics,” turns to the pattern of capital flows in the form of foreign direct investment (FDI). The key feature analyzed in this chapter is the high level of capital mobility across industrialized countries—one of the important assumptions adopted in the Kemp-Jones model.