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net trade vector of country. -gives the expected factor content of trade of country resulting from endowment differences between country and the world (Leamer 1980). According to the HOV model, endowment differences will lead to net exports of factor services. Given a world with two factors of production, capital and labour, we can decompose the above equation into to the following equations:

 

Where and are the capital and labour embodied in the net exports of country .

 

Given this country is said to be relatively capital abundant if >and < or > while its relatively labour abundant if the opposite is true. According to Leontief (1954) we can also look at factor embodied in export and imports and country is said to be relatively capital abundant if >. However, this will only apply between countries with balanced trade.

 

To compare countries with unbalanced trade we can compare factor ratios of net trade and consumption as suggested by Learner (1980). Thus, if a country is a net exporter of both capital and labour goods, it is said to be relatively capital abundant if its capital intensity of net exports exceeds the capital intensity in consumption (>). While, if it is a net importer of both capital and labour goods, it is relatively capital abundant if its capital intensity of net exports is less than the capital intensity in consumption (<).

 

With these formulations past empirical tests of the HO model have found mixed results on whether the model holds or not. An empirical test of the United States by Leontief (1953) disproved the hypothesis that countries specialisation and export goods produced using intensively their relatively abundant factor. Noted that United States is considered to be the most capital abundant nation, but the HO tests showed that it was actually a net importer of capital abundant goods.

 

Commodity Composition Approach (CCA).

 

In trying to test the above hypothesis we can also employ the commodity composition approach which uses regression analysis of the commodity composition of South Africa’s trade. The regression equation will take the form given below:

 

=++++

 

Where is net trade for country, θ’s are country’s gross factor input intensities, while’s are the associated coefficients of factor intensities. The associated coefficients of factor intensities are of interest in the regression and a positive coefficient mean that any increase in the underlying factor endowment will lead to any increase in net trade, while a negative means the reverse of this. As shown by the regression model the CCA uses trade and factor intensity only, while the underlying model we sort to test, the HOV consists of three 本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。