Factor Content Of Chinese Manufacturing Industry

HOV theory is the traditional method to analyze trade factor content.But its assumptions are so strict that the result of its empirical test doesn't fit the actual situation.In this paper,the traditional HOV model is extended by considering technology differences,factor abundance and forms of business ownership.In this paper three main assumptions of HOV model are loosen: 1)we allow different factor prices between countries,using Helpman(1984)and Staiger(1986)for reference;2)We also follow Lai & Zhu(2007)to take technology difference into account;3)As for the case of forms of business ownership,we use the meathod from Kancs & Ciaian(2010),calculate the weighted average of productivity,factor prices and factor endowments according to the share of input or output.The extended HOV model is more suitable for empirical studies.After empirical tests using bilateral trade data of China and other G20 countries,we find that: although Chinese manufacturing industry is in the process of rapid transformation,it is still labor-abundant.In consideration of the firm heterogeneity,differences in technology and factor endowments become more persuasive on explaining factor content of trade.