factor proportions, technology and dutch industry’s international trade patterns

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Page 1: Factor proportions, technology and Dutch industry’s international trade patterns

Factor Proportions, Technology and Dutch lndustry's International Trade Patterns

By

M. H u l s m a n - V e j s o v A a n d K. A . K o e k k o e k

C o n t e n t s : 1. Introduction. -- II. Concepts and Methods. -- III. Results. -- IV. Impact of the Oil Sector. -- V. West Germany and the Netherlands. - - VI. Conclusions. -- Appendix.

I. I n t r o d u c t i o n

T he subject of this article is an attempt to explain the structure of

1973 trade of Dutch manufacturing industries with the world as a whole, and with three groups of countries, viz. developed market

economies, developing countries, and centrally planned economies. As a part of the exercise, the neo-factor proportions hypothesis and

the neo-technology hypothesis have been tested separately and in combi- nation. According to the first hypothesis, each country will export goods that embody relatively much of the domestic factor of production that is in abundant supply, be it unskilled labour, physical or human capital or natural resources. The same production function is supposed to hold for any good in all countries. According to the neo-technology hypothesis there are inter-country differences in mode of production, e.g., countries able to apply innovations will export such products as lend themselves particularly to technical improvements 1.

To our knowledge, an empirical exercise with regard to the trade of Dutch manufacturing sectors with a number of world regions, like the one envisaged in this paper, has not been carried out before. We have based our exercise on Dutch data on factor intensities. A proper test of the neo-factor proportions hypothesis for a country, however, ought to in- clude an examination of both factor intensities of trade and national factor endowments; otherwise, a test may be criticized as incomplete [see, e.g., Branson, 1977]. Though the empirical work on factor endowments has been very scarce, a recent s tudy contained a crude measure of Dutch endowment with physical and human capital [Balassa, 1977]. In a sample of eighteen developed and eighteen developing countries, the Netherlands

Remark: We gratefully acknowledge valuable comments given by Professors H. C. Bos and L. 13 .M. Mennes, and an anonymous referee. Thanks for kind co-operation are due to the Netherlands Central Bureau of Statistics in The Hague, in particular to Drs. J. T. Kolfoort.

x For a detailed discussion of the two hypotheses see, e.g., Stern [x975].

Page 2: Factor proportions, technology and Dutch industry’s international trade patterns

Dutch Industry's Interuational Trade Patterns 163

appeared relatively richly endowed with human capital, and less rich where physical capital was concernedL With the results of our exercise at hand, we will be able to say whether Dutch comparative advantage is indeed associated with the factors of production, which are reportedly abundant in the Netherlands.

Point of departure for the study 2 has been an analysis of West German trade patterns published recently by Frank Wolter [I977] a. As a part of the analysis, he tested empirically whether the neo-factor proportions hypothesis and neo-technology hypothesis were competing or complementa- ry or whether one of the hypotheses was dominant in explaining the trade patterns under consideration. In some respects, we used terms and proce- dures similar to Wolter's, as will be described in Section II. The results for the Netherlands are presented in Sections I I I and IV (discussion of the impact of oil trade). The findings for West Germany and the Netherlands are compared in Section V. Section VI contains a number of conclusions.

II. Concepts and Methods

The hypotheses were tested by means of regression analysis, in which factor intensities and technological features of Dutch manufacturing sec- tors were alternately related to a measure of relative trade performance of these sectors in 1973 .

The traditional variables which appear in the factor proportions theory are capital and labour. Usually they do not enter the analysis separately, but as a capital-labour ratio, the underlying production function of the traditional trade model being assumed to be homogeneous of the first degree. Especially after the discovery of the Leontief paradox, factors additional to capital and labour were introduced into the analysis, in particular human capital, representing capital invested in the schooling of

x In Balassa's paper, physical-capital endowment was measured as cumulated gross fixed investment per capita, I955--1971, in U.S. $. Human capital was measured by the Harbison-Myers index. The Netherlands ranked twelfth in the sample of eighteen developed countries, with a lower-than-average figure for physical capital. With regard to human capital, the "Netherlands occupied the fourth place, with an above-average value of the Harbison- Myers index. A measure of natural-resource endowments for the Netherlands could not be obtained from recent literature. I ts agricultural production is of importance though and in its sea harbours raw materials are landed in bulk.

t The analysis deals with the trade of the manufacturing sector of the Netherlands. Thus, it does not bear upon a comparative advantage which the Netherlands may have in exporting primary agricultural products and/or tradeable services. However, the bulk of Dutch total trade (more than 7o per cent) consists of manufacturing goods. Trade iu unprocessed primary products is frequently explained solely by their availability. Data on Dutch trade in services with individual regions are not available.

a Throughout this article, the terms "neo-factor proportions hypothesis" and "neo- technology hypothesis" are applied after Wolter.

I I $

Page 3: Factor proportions, technology and Dutch industry’s international trade patterns

M. H u l s m a n - V e j s o v ~ and K. A. K o e k k o e k

(i)

(2)

(3) where

i

labour, and natural resources. In our analysis, labour, physical and human capital and natural resources are taken into account. The factor propor- tions approach abstracts from a number of technical phenomena, such as economies of scale or inter-country differences in the incidence of techni- cal improvements. The two phenomena are often explicitly analysed in the" neo-technology approach, and were also introduced into our exercise.

The exercise has a bearing on the trade relations of seventeen sectors of the Dutch manufacturing industry with four regions: world, developed market economies, centrally planned economies, and developing coun- tries. The regression equations used for the analysis were based on the following relationships:

In {(xij/mij ) : ( X j / M j ) } = fj(PCI i, HCIi)

In {(xij/mij ) : (Xj fMj)} = fj(PCIi, HCI i, RMIi)

In {(xij /mii ) : (Xj /Mj )} = f j ( R & D i , SEi)

= subscr ip t referring to t he i - th sector of the Dutch manufac tu r ing indus- t ry ; 17 sectors are considered, viz. sectors 4 to 20 of the 1973 Inpu t - Ou tpu t Table of t he Netherlands1;

j = subscr ip t referr ing to the j - th region d is t inguished wi th respect to t r ade flows; four regions are defined in accordance wi th the Uni ted Nat ions regional breakdown, viz. World , Developed Market Economies (MDC), Central ly P lanned Economies (CPE), and Developing Countries (LDC);

xij = expor t s of the i - th sector to t he j - th region (million Dfl.) ;

mij = impor t s of the i - th sector f rom the j - th region (million Dfl.) ;

Xj = to ta l manufac tu r ing expor ts to region j (million Dfl.) ;

Mj = to ta l manufac tu r ing impor t s from region j (million Dfl.) ;

D a t a for xij, mij , Xj , Mj, i = I . . . i7, J = MDC, CPE, LDC, were taken from UN, Commodity Trade Statistics, Statistical Papers, Series D (on magne t ic tape) and regrouped according to the sectoral classification of the 1973 I-0 Table of t he Nether lands .

Da ta for xij, mij , X j , Mj, i = I . . . 17, j = Wor ld , were taken f rom the 1973 I-0 Table of t he Nether lands s.

Da ta for xij , mij, Xj, Mj pe r t a in to 1973, unless otherwise indicated.

PCIi = physical-capi ta l in tens i ty of t he i - th sector; to ta l use of energy in tera- calories a per man-year . Da ta ob ta ined f rom the Central Bureau of Stat is t ics and adap ted ;

x For the list of sectors and their code numbers see the Appendix.

In the I-0 Table transit trade per sector is registered separately. The deduction of transit trade from imports has been a meaningful correction especially in the case of the oil sector. As it was not possible to classify transit trade by country of origin, the correction has been applied only to the sectoral trade with the World according to the 1973 I-0 Table.

s 1o12 calories.

Page 4: Factor proportions, technology and Dutch industry’s international trade patterns

Dutch Industry's International Trade Patterns i65

HCIi = human-capital intensity of the i-th sector; share of employees with secondary, semi-higher and higher degree of education in per cent of total employment in the sector. Data taken from the 1971 population c e n s u s ;

R M I i = raw-material intensity of the i-th sector; accumulated domestic inputs from agriculture, forestry, fishery and mining per unit of output. Data taken from the 1973 I-0 Table of the Netherlands;

R&Di = incidence of innovations in the i-th sector; outlays on research and development in per cent of output. Data collected by the Central Bureau of Statistics;

SEi = scale economies in the i-th sector; persons employed in firms with 50o and more employees in per cent of total employment in the sector. Data taken from Monthly Statzstics [or Industry, issued by the Central Bureau of Statistics.

An implicit assumption used in our analysis is tha t characteristics of the manufac tur ing industries can be considered as characterist ics em- bodied in products exported and impor ted b y these industries.

Variables in equations (i) and (2) represent the neo-factor proport ions approach. These equations are referred to as Heckscher-Ohlin HO I and I I , respectively. As can be seen, HO I I differs f rom HO I b y the inclusion, as an explana tory variable, of the raw-material intensity. Equa t ion (3), denoted as NT, contains variables common in the neo-technology ap- proach.

About a hundred equations containing al ternative concepts for the dependent and the exp lana tory variables were es t imated and the results systemat ical ly examined. The variables as defined in equations (I) to (3) led to outcomes which proved stat ist ically the most satisfactory. Ex- amples of tested al ternat ive measures for the dependent variable are xil/mij, xij/(xlj -~- mij), xij /output . As a p roxy for human-capi ta l in- tensity, wage costs per man-year , and women in per cent of all employees were also used. Finding a p roxy for physical-capital in tensi ty was ra ther difficult. As sectoral da ta on plant and equipment were not available this factor was approximated by depreciation on capital stock per man-year and non-wage value added per man-year . Finally, energy proved prefer- able as a p roxy for physical capital [see, e.g., Hil lman and Bullard III, 1978].

I f estimates of equations (I) to (3) prove to be stat ist ically significant, the neo-factor proport ions hypothesis and the neo-technology hypothesis can be seen as relevant concepts in finding determinants of the relative t rade performance of Du tch industries. Wi th respect to t IO I and II, one would wish to fur ther assess whether the relative t rade performance per sector depends on the use of physical and h u m a n capital only or whether the natural-resource variable does have an addit ional explana tory power.

Page 5: Factor proportions, technology and Dutch industry’s international trade patterns

166 M. Hulsman-VejsovA and K. A. Koekkoek

A test can be employed for that p u r p o s e 1. For those trade patterns i where the resource variable contributes to explaining the variation in trade performance, HO II dominates HO I. Where this test fails to show that natural resources are of additional influence on trade, HO I is said to dominate I-IO II. Of the two HO models estimated for each region j, the dominant one will be used for further analysis.

Provided that for every region i both the NT equation and the domi- nant HO equation yield a satisfactory result, the question arises which of the two hypotheses then "does better ."

One way of dealing with this question is to use the above-mentioned test, weighting the variables of the NT equation against the variables of the dominant HO equation. The result of the test would allow statements about the aptness of one hypothesis vis-a-vis the other. I t is then necessary to estimate

(4) in {(xij/mij ) : (XjfMj)} = f j (PCIi , H C l i , R & D i , SEi) a n d

(5) In {(xij/mij ) : (X/Mj)} - - fj(PCI i, HCI i, RMIi, R&Di, SEi)

One or the other of these combined HO/NT estimates, dependent on which I-IO estimate is dominant, will be compared alternately with the dominant HO estimate and the NT estimate. The four possible outcomes of such a pairwise comparison are tabulated as follows:

I .

2 .

3-

4.

HO/NT versus HO: NT variables in HO/ NT influence varia- tion of relative trade

performance

n o

yes

yes

n o

HO/NT versus NT: HO variables in HO/ NT influence varia- tion of relative trade

performance

yes

n o

yes

no

To be referred to as

1 A test statistic which Wolter [I977, P. 254] describes as ".

1 - - R 2 n - - Q

HO hypothesis "dominant"

NT hypothesis "dominant"

both hypotheses complementary

both hypotheses competing

where S refers to the simple model, E refers to the extended model, K and Q equal the number of exogenous variables of the simple and extended models, respectively, and n refers to the number of observations." See Kmenta [i97i , pp. 37o f.].

Page 6: Factor proportions, technology and Dutch industry’s international trade patterns

D u t c h I n d u s t r y ' s International Trade Patterns 167

If needed, the test will be applied to the results for the Netherlands. However, there remain some doubts that it is proper to apply the test to variables representing widely different theoretical approaches rather than additional variables based on one theory (see HO I and HO II). For, in the former case, variables combined in one equation may be based on widely different and even incompatible theoretical assumptions.

The interpretation of results in the next section may be facilitated by a brief comment on the actual structure of Dutch trade, as described by the dependent variable {(xij/mij) : (X/Mj)} , to be called Y~.

For j ----- World, this variable indicates how the export-import ratio of a particular sector compares with the export-import ratio of the manu- facturing industry as a whole. The latter was about I in 1973, exports and imports of all manufacturing sectors taken together being roughly in balance. Six out of the seventeen sectors included in the sample had a

(Yworld larger than I). better-than-average ratio of exports to imports i These six sectors are the two food industries (4 and 5), beverages and tobacco (6), printing and publishing (I2), chemicals (I4), and electrotech- nical products (I8), together accounting for some 65 per cent of all manu- facturing exports. The oil sector (i3), good for some 12 per cent of manu- facturing exports, had just the average, near-unity export-import ratio.

For j = MDC, LDC, CPE, the dependent variable shows a region's relative importance as export market or import market of a particular Dutch sector, in comparison with that region's relative importance as export or import market for total manufacturing. For all manufacturing in 1973, developed market economies were more important as export market than as import market, while centrally planned economies and especially developing countries featured predominantly as import markets.

When a certain sector exports to and imports from a region the same percentage share of products as do all sectors taken together, the respec-

i i Y w o r l d �9 tive YReeon equals Developed countries' share in exports and

imports of many individual sectors nearly equalled that region's share in exports and imports of the manufacturing industry as a whole. Values of Y~DC thus follow closely the respective i YworlO values. On the other hand, exports to and imports from developing countries and centrally planned economies made up widely varying proportions of exports and imports per sector, causing the spread of Y~I,E and especially of Y~Dc values

Yworla values to be considerable. around the respective i

HI. Results

The results of regressing In Y~ on a number of neo-factor proportions and neo-technology variables are given in Table I. Part of the underlying

Page 7: Factor proportions, technology and Dutch industry’s international trade patterns

I 6 8 M. H u l s m a n - V e j s o v ~ i a n d K. A. K o e k k o e k

calculations, involving confidential unpublished data on R&D, has been carried out by the Netherlands Central Bureau of Statistics (CBS). The authors could inspect the results. Confidentiality obligations of the CBS did not allow the release of all findings. Therefore, in some cases only the major characteristics of the exercise are commented upon in this article.

After the estimation of the two versions of the Fleckscher-Ohlin model, the test procedure as described above was applied for the first time. I t appeared that in the case of the world and developed market economies, the extended HO II is the dominant model; for developing countries and centrally planned economies the simple 1-10 I is dominant.

The results of Table I suggest that both the neo-factor proportions hypothesis and the neo-technology hypothesis can be considered relevant in explaining trade of Dutch manufacturing sectors. For trade with the world, developed market economies, and developing countries, the domi- nant tieckscher-Ohlin model yields estimates, that are statistically highly significant, explaining some 60 to 80 per cent of the variation in the

Table I -- Dutch Manu/acturing Sectors: Determinants o/ Relative Per/or- mance in Trade with the World and Mafor Economic Regions a, 1973 (n ---- 17)

Coefficient Hy- Re-

~ t h - gion ~iS COn- In ! ~ J l nSE Rt R * F s tan t In HCI PCI RMI , R & n I E R D SE i t

I I ~, [ I H O I W o r l d - - 2 . 0 7 8 ] 0.855 . . . . o i7 1 I l , o . 2 3 1 o i 5 2 1 6

'r (2.o42) ( - - 0 . 8 5 8 ) I : ' i H O I I World - - 2 4531 0.948*** - - o . o i 4 2.516"** i , ! I : o.74[ o.691 I2.95"**

(3.799) ! ( - -x . , 63 ) ( 5 . I 5 9 ) I ' ( - -1 .o8)] (2.48) I I I NT World ! I __S b ~ I S**b !Sr I 3.32*

H O I MDC - - z . z 6 9 o.4o7 I 0.042** o.51 / 0.45 ! 7.36*** [ ( I . o 6 3 ) (2.396) ' , , ' :,

: O I I MME~ I 5 I I I (: '49~ ( 4 " ~ (~:2~ - - S b i S*b S13 ~ 1 7 6 2 1 ; 7 " * *

, I ( - - 0.76)] } I 95 " i I I I

H O I LDC - - 6 304 ' 3 526*** - - o x96 ***~ I , 0.57 0.52, 9.47*** (3.444) ] ( - - 4 . x 6 2 ) ! i / I I

H O I I LDC - - 6 . 4 g 5 3.556*** t - - o . 195 **d 0.809 [ I ]o.58 o.5o[ 5,98*** (3.357) [ ( - - 4 . o i 8 ) (0-39 I) / i ] I j

NT LDC I [ l Sb I - - S b I I S . . . . 59 : I (m.7o) ( - 0 , 7 0 ) [ ,

H O I CPE I - - 4 4871 I 812* - - o 034 [ ' ! 0.23 o.15~ 2,I9 I (2.o5o) 1( - -o .833) ~ ' ~ "

H O I I CPE --4.8141 1.893"* - - 0 . 0 3 2 2.z94 ~ [ [0.32 o.zl l 2.09 [ (21 ~88) J ( - O'808) (I ~98) r I ]

NT CPE I i I Sb I Sb I Sc i 2.85* I ~ ) ( o . 8 3 ) ~ ; (I.6o) 1

ee t t a~ee~rei~,~tiontwP~a~e~Wes~o r F.S~gtnifi. cant at 90 per cent, ** sigmfieant a t 95 per cent and *** significant at 99 per

�9 Measured as In ~ x l i : XI ~ . For further explanations see Section II - - b Not to be pubhshed m view ol the ~,mq M i )

confidentiality obligation of the Central Bureau of Statistics. See also the text of Sectlon I n . r R ~ for the NT estimates are below the (lngber) R s for the HO estimates.

Page 8: Factor proportions, technology and Dutch industry’s international trade patterns

D u t c h I n d u s t r y ' s I n t e r n a t i o n a l T r a d e P a t t e r n s 169

dependent trade variable. I t is noteworthy that, with the data at hand, the neo-technology hypothesis could be confirmed only for trade with the world and with the centrally planned economies. The estimated regression equations based on the neo-technology hypothesis reach, as a whole, a lower level of statistical significance than the above-mentioned H 0 equa- tions.

In the case of the world only, both hypotheses led to a statistically significant result. Still, also with respect to other regions, each of the two hypotheses may significantly extend the explanation offered separately by the other one. So, we applied the test described in Section I I for the second time; test results are presented in Table 2. They reveal that in explaining trade of Dutch manufacturing sectors with the world, the developed market economies, and the developing countries, the neo- factor proportions hypothesis, as formulated in the FI0 I and H 0 I I models, dominates the neo-technology hypothesis. For trade with the centrally planned economies, both hypotheses are competing. The latter result is a bit surprising in view of the fact that of the separate H 0 and NT estimates for centrally planned economies, the H 0 one was not signif- icant while the NT was.

Table 2 - - Competing or Dominant Hypotheses in Explaining Dutch Industry's Relative Trade Per[ormance in Trade with the World and Major

Economic Regions, 1973 a

" - - - - - ~ H y p o t h e s i s ~ - - - . . . . t t O I H O I I N T

R e g i o n - -

W o r l d ! d o m i n a n t I

M D C d o m i n a n t

L D C d o m i n a n t

C P E . c o m p e t i n g I c o m p e t i n g

a F o r the m e t h o d of d i sc r imina t ion , see Sect ion lI . The te~ts were c o n d u c t e d b y us ing the e s t ima te s g iven in T a b l e i a n d those p r o v i d e d b y the CBS, no t pub l i shed in th i s ar t icle .

Provided that the factors, whose proxies have significantly positive coefficients with respect to relative trade performance, can be said to contribute to sectoral comparative advantage, further comments upon Tables I and 2 can be formulated as follows 1.

1 Needless to s ay t h a t these c o n u n e n t s bea r upon the I973 s i tua t ion of D u t c h indus t r i a l sectors , as ref lected b y the exercise of th is art icle.

Page 9: Factor proportions, technology and Dutch industry’s international trade patterns

170 M. H u l s m a n - V e j s o v ~ and K. A. K o e k k o e k

In the trade with the world, those sectors of Dutch industry have comparative advantage, that make intensive use of human capital and raw materials. The same holds for trade with developed market economies, in which case also the use of physical capital is of importance.

Sectoral trade with developing countries reveals a somewhat different picture. Raw-material intensity plays an insignificant role, while physical- capital intensity is even negatively related to trade performance. (More on the influence of physical capital is said in the next section.)Sectors using human-capital intensively have a comparative advantage vis-A-vis developing countries. As is reflected in the size of the respective coeffi- cients and its significance, the effect of human-capital intensity is more pronounced in trade with developing than in that with developed countries.

The overall explanation of trade with the centrally planned economies is the least satisfactory. It seems that only human-capital intensity has some positive influence on sectoral comparative advantage in trade with that region.

The estimated coefficients of the human-capital variable show quite a stable pattern for various regions, with respect to both significance and sign. The generally significant and positive influence of skilled labour on export performance per sector contrasts with results obtained in prelimim nary calculations for an alternative measure of human capital: wage costs per man-year. The latter proxy, where it led to significant estimates at all, showed a negative relationship to trade performance. The differing results for the two proxies may imply that, for the Netherlands in the early seventies, human capital per sector is better approximated by the share of employees with semi-higher and higher level of education, while wages per man-year represent rather an (export-impeding) cost factor.

The individual coefficient estimated for the scale variable with respect to trade with the world and the developed countries is significantly posi- tive. One may tentatively conclude that the access to the EEC market offers locational advantage in the Netherlands for industries benefitting from economies of scale. This tendency is apparehtly not strong enough to make the neo-technology hypothesis relevant for explaining trade with the developed countries. As Table 2 shows, scale has not enough influence to extend significantly the explanatory power of the neomfactor propor- tions variables.

The R&D variable, as measured in this exercise, does nowhere exhibit a significant relationship to comparative advantage. This is the more puzzling as the relative R&D expenditures do (not unimportantly) coin- cide with the share of skilled labour per sector 1, and a high skilled-labour

See Appendix, Tables I and II.

Page 10: Factor proportions, technology and Dutch industry’s international trade patterns

Dutch Industry's International Trade Patterns I7I

intensity clearly enhances sectoral comparative advantage. It is possible that our R&D concept fails to approximate innovativeness of the Dutch industry after all. Another tentative explanation may be that Dutch industry tends to export products brought about by Dutch qualified labour with an already existing advanced technology, rather than products derived from new Dutch-made technical inventions.

IV. Impact of the Oil Sector

As said previously, in 1973 the developed market economies consti- tuted predominantly an export market for the Dutch industry, while developing countries featured more as an import market. That pattern held especially for trade in oil products. Nearly all imports of the oil sector came from the developing countries, nearly all exports went to the developed market economies. That implies that in both Yiax and Y~Dc sets of data, trade performance of the oil sector stands out at once 1. An (admittedly imperfect) way of showing the influence of oil trade on the overall picture is to estimate the regressions described above for only sixteen sectors of Dutch manufacturing, exclusive of the oil sector. The results of that procedure are given in Table 3-

It appears that relative trade performance of the sixteen sectors with respect to the World, MDC and LDC is still well explained by variables based on the neo-factor proportions approach. The neo-technology ap- proach does not lead to statistically more significant results than before.

With respect to individual explanatory variables, the results on phy- sical-capital intensity are worth notice: a statistically significant influence of physical capital on trade with developed market economies and devel- oping countries, established for the sample of seventeen branches of indus- try, disappears when the oil sector is removed from the sample. With regard to the other explanatory variables, the outcomes of the reduced and the full-sample exercises do not differ much, though the variables of the neo-technology approach seem to perform slightly better when the oil sector is not included.

The conclusion that can be drawn from the reduced-sample exercise is that the role which physical-capital intensity plays as a determinant of Dutch sectoral comparative advantage cannot be understood without taking account of the oil sector. Special characteristics of this sector

1 oil i YWorld, on the other hand, forms no exception in the YWorld set of data, as total

exports and imports of oil products were about balanced, resembling the situation for total manufacturing.

Page 11: Factor proportions, technology and Dutch industry’s international trade patterns

172 M . H u l s m a n - V e j s o v f i a n d K. A. K o e k k o e k

Table 3 - - Dutch Manu/acturing Sectors Exclusive o~ the Oil Sector: Determinants o~ Relative Performance in Trade with the World and Ma/or

Economic Regions a, 1973 (n : 16)

Hy- poth- esis

HO I

H O I I

NT

HO I

H O I I

NT

HO I

H O l l

N T

HO I

HO I I

NT

[ Coefficient R e -

s tan t ' l n H C I PC1 ' RMI R & D i R & I D SE : i

World --2.1621

I F

MDC I - - L3151

MDC - - 1.65zil [

MDC

LDC - - 6.2o6 i

LDC - - 6.3261 I

LDC

CPE - -4 ,455!

CPE ! --4.7781

CPE ] .

o.913 * (2.o13)

1 . O O 2 " * *

(3.742 )

0.506 (1.24z) 0.587**

(2.497)

3.459*** (3. lO4) 3.488*** (3.o19)

1.79o* (1.859)

1.868" (1.977)

t

- - 0 . 048 ( - - o.6o8)

0.045 2.5z4 *** ( - -0 .950) (5 o4x)

r

--~176 I i (--o,/79)o,oo9 I 2.284***

(-- 0,227) (5.213

I h

- - o . 1 5 9 (--o.8~z) - - o . I 5 8 o.8x2 (-- 0.778) (0.377)

1 - - 0 . 0 2 2

( - -o .128) - - 0 . 0 1 8 2.195 I--O. IX*) (1.248)

I

L S b (_s)b

S b (S)b

I - - S b (--S)

S*b (S)b

In SE

] 0.75

S**b i Sc ', (S)b ,

: I [0. I2 l !

0.72

Sb i Sr (S)b

i [ o.431

] i ~

: - - S ~ .. ' S , i ( - - S ) b t

! s**b !(s)b

1

i R* R* t [ r r i ~ 0.24, o. r5i 2.o6

0.70 zz.44***

S*b

o .ox 0.85 i

o.67 i IO.77"**

I S b i

o.36 4.99**

0.33 3.15"

, : S b

i ' I o 23 o 14 2.00

I 0.32 0.20 1.9 I

S c S*b

t-coefficmnts in parantheses. - - * Significant at 9 ~ per cent, ** significant at 95 per cent, *** significant at 99 per cent according to two-sided t - tes t or F-test .

a For explanat ion see Table i and Section I I . - - b Not to be pttbhsbed in view of the eonfident lahty obligation of the Central Bureau of Statistics. See also the text of Section n I . - - c R t for the NT est imates are below the (higher) R t for the HO estimates.

interfere with the pat tern observable when the oil sector is left out of the set of industries: the pat tern of a non-significant influence of physical capital on sectoral trade.

V. W e s t G e r m a n y a n d the N e t h e r l a n d s

The subject of this section is a comparison of results obtained by Wolter [1977] for West German industry and our findings for the Nether- lands.

I t should be kept in mind that the comparabil i ty is imperfect, owing to difference in branch definitions and coverage as well as to various methodological differences in the two studies. For example, human capital is defined as a percentage share of employees with a certain level of schooling in the Dutch case, and as capitalized wage differentials for West Germany. The sectoral use of energy approximates physical capital in the Dutch case; expenditure on plant and equipment stands for physical

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Dutch Industry 's International Trade Patterns 173

capital in the exercise for West Germany. The natural-resource variable is described as accumulated resource inputs per unit of output for the Netherlands, and direct resource inputs as per cent of value added for West Germany. No meaningful approximation for the effective rate of assistance of industrial sectors was available for the Netherlands.

In spite of these differences, the two studies end up with a number of similar findings. The most important of them concern (I) the relevance of the neo-factor proportions approach and the neo-technology approach for both countries' trade, (2) weak or failing explanation of trade with centrally planned economies by means of either of the two theories consid- ered, (3) positive influence of human-capital intensity, scale economies, and with respect to developed countries, of raw-material intensity on the sectoral comparative advantage.

The most striking differences in outcome bear upon (I) the general confirmation of the neo-technology hypothesis for West Germany, and poor working of that theoretical concept for trade with the developed and developing countries in case of the Netherlands, especially the insignificant result on R&D for the Netherlands, (2) the generally negative influence of physical capital on West German industry's sectorat trade, and positive influence of that factor on Dutch sectoral exports to developed market economies, mainly due to the characteristics of the Dutch oil sector. Trade data for that capital intensive sector contain important exports of natural gas and oil products to developed countries. The availability of natural gas and locational advantage for the oil refineries are probably the factors behind the differing results for the Netherlands and West Germany, as far as physical capital is concerned.

VI. Conclusions

The results obtained in our exercise bear out that both the neo-factor proportions hypothesis and the neo-technology hypothesis are indeed useful concepts in the search for determinants of comparative advantage of Dutch manufacturing sectors. The neo-factor proportions hypothesis has led to a significant explanation of trade with the world, and with the developed and the developing countries, but not of trade with the cen- trally planned economies. The data at hand have also enabled us to establish the relevance of the neo-technology hypothesis for trade with the world and centrally planned economies, though not for trade with the developed and developing countries. An important element of the latter hypothesis, the incidence of innovations, approximated here by the relative R&D expenditures, has been shown to have no effect on sectoral

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174 M. H u l s m a n - V e j s o v d t and K. A. K o e k k o e k

trade in the Dutch case. I t is not inconceivable though that further refine- ment of data may lead to more positive results in that respect.

Provided that the trade variable used is a proper measure of compara- tive advantage, the Netherlands vis-A-vis the world seem to possess such advantage in products of sectors that are human capital intensive, make use of domestic natural resources and realize economies of scale. The role of physical capital cannot be understood without taking due account of the oil sector. These findings are particularly interesting because they are in line with the pattern of factor endowments for the Netherlands as presented in a recent s tudy [Balassa, I977], according to which the country is relatively rich in human capital and less so in physical capital.

As already stressed, human capital appeared to affect comparative advantage in a significantly positive way; the statistical performance of the R & D variable was less satisfactory. Thus the two variables, some- times believed to coincide completely in their impact, produced differing results in the Dutch case.

The significantly positive impact which the use of domestic raw ma- terials (of mainly agricultural origin) has on exports to the world and the developed market economies, may conceivably be related to the existence of the EEC market and its common agricultural policy. Another reason for a good trade performance of Dutch food industries may lie in taste- and tradition-related demand for exports, as well as good supply conditions offered by the highly specialized Dutch agriculture.

Finally, it cannot be stressed enough that the exercise commented upon reflects the situation of Dutch manufacturing in the early seventies. As both trade relations and their determinants develop, an exercise for the late seventies may end up with different conclusions. The need for further analysis with more recent data may have grown in the light of some intriguing results described above.

Appendix

List o/Industries

No. Code a I n d u s t r y

I 4 Food of animal origin 2 5 Other food 3 6 Beverages and tobacco 4 7 Textiles 5 8 Clothing 6 9 Leather and footwear 7 IO Wood and furni ture

Page 14: Factor proportions, technology and Dutch industry’s international trade patterns

D u t c h I n d u s t r y ' s I n t e r n a t i o n a l T r a d e P a t t e r n s

N o . C o d e a I n d u s t r y

I75

8 I I Paper 9 12 Printing and publishing

Io 13 Oil (inclusive of oil products and oil and natural gas extraction)

I~ 14 Chemicals, rubber and plastic working

I2 15 Building materials, earthenware, glass 13 16 Basic metals 14 17 Metal products and machinery 15 18 Electrotechnical products I6 19 Transport equipment 17 20 Optical and miscellaneous products

a Seetoral classification of the Input-Output Table of the Netherlands; CBS [x973].

Variable

H C I . . . . In H C I . . . PCI . . . . I n P C I . . . R M I . . . . I n R M I . . . R & D * . . l n R & D * S E . . . . . In S E . . .

T a b l e I - - Coefficients o/Correlation r between Exogenous Variables, Dutch Manu/acturing Sectors, 1 9 7 3 (n : 17)

m

H C I In H C I PCI

o .66 i** 0.578*

i

In PCI

o.56x* 0.543*

I

R M I

- - 0 . I47 - - O . I I 2 - - o . o 9 3

O.O81 I

In R M I R & D a I In [ R & D o

__0 .476 b b __O,450 t" r __0.383 d d

0.019 h b d d

Z b b

I

S E

0.739** 0 .760** 0.392 0.486 *

- - o.o06 - - 0 . 3 2 9

c �9 r176

i

l n S E

o.64o** o.7o6** o.338 o.456 0.090

- - o . x 8 5

e"

* Significant a t 95 per cent , * * significant a t 99 per cen t aceordmg to F- tes t .

, N o t to be published in v iew of the conf ident ia l i ty obl igat ion of the CBS. See also the t e x t of Sect ion III. - - b The corresponding var iable was not included in the calculat ions carried out by the CBS; r no t calculated. - - c 0.6 < r < o.7. __ o r < o . 3 . - - �9 o.3 < r < o.6 (s tat is t ical signfficance inde te rmina te) .

Variable

T a b l e I I - - Coefficients o/Correlation r between Exogenous Variables, Dutch Manu/acturing Sectors Exclusive o/the Oil Sector, 1973 (n = 16)

I I In R M I R & D ~ R l n D * S E H C I In H C I PCI In PCI R M I i

i H C I . . . . In H C I . . . PCI . . . . In PCI . . . R M I . . . . In R M I . . . R & I ~ l n R & D a S E . . . . . in S E . . .

o�9 0 .433

I

o.3x4 0.348

I

r

-0.337, - - 0 - 3 2 4 I

--0.050 - - 0 . 0 7 5 1 og64

! * Significant a t 95 per cent , * * significant a t 99 per cen t according to F- tes t .

** d *

I . I

0-735* o.74 x** 0.476 0.404 0.02O

- - o . g 4 6

d *

I

In S E

o.63x** 0.692** 0 .4x4 0.393 o .xx6

- - o . o 9 9 f d *

Z

. N o t to be published in v iew of the conf ident ia l i ty obligation of t he CBS. See also the t e x t of Sect ion I I I . - - b The corresponding variable was no t inc luded in the calculat ions carr ied ou t by the C B S ; t no t ca lcula ted . - - ~ o.7 < r. - - tl 0 .6 < r < o . 7 . - - o r < o . 3 � 9 f 0 .3 < r < o.6 (s ta t is t ica l significance inde te rmina te ) .

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176 M. H u l s m a n - V e j s o v f i and K. A. K o e k k o e k

References

Balassa, Bela, A "Stages" Approach to Comparative Advantage. Pape r Prep. for the F i f th Wor ld Congress of t he In t e rna t i ona l E conomic Associa t ion , Tokyo, 29 Au- g u s t - 3 Sep tember , 1977.

Branson, Wil l i am, " C o m m e n t " . In : Ber t Ohl in et al. (Eds.), The International Alloca- tion o/ Economic Activity. Proceed ings of a Nobel S y m p o s i u m a t S tockholm 8- -11 June , 1976 , London , 1977, pp. 8o---91.

Central Bureau of Statistics (CBS), Input-Output Table o/ the Netherlands, ~973. T a k e n f rom Nationale Rekeningen, 1975, 1976, The Hague .

Hi l lman, Arye L., a n d Clark W. Bullard III, " E n e r g y , t he Hecksche r -Ohl in T h e o r e m , and U.S. I n t e rna t i ona l T rade" . The American Economic Review, Vol. 68, Menasha , 1978, pp. 9 ~ - I O 6 .

Kmenta, J an , Elements o/Econometr,cs. New York, 197 t.

Stern, Robert M., " T e s t i n g Trade Theor ies" . In : Pe te r B. K e n e n (Ed.), International Trade and Finance, Frontiers/or Research. Cambr idge , 1975, Pp. 3 - -49 .

Wolter, Frank , " F a c t o r P ropor t ions , Techno logy and W e s t G e r m a n I n d u s t r y ' s I n t e r n a t i o n a l T rade P a t t e r n s " Weltwirtscha/tliches Archiv, Vol. 113, 1977, pp. 25o- -267 .

Z u s a m m e n f a s s u n g : Fak to rp ropor t i onen , Technologie u n d AuBenhande l s - s t r u k t u r der niederl~kndischen Indus t r ie . - - I n d iesem Aufsa tz wird ein Versuch t m t e r n o m m e n , die S t r u k t u r des AuBenhande l s der ve ra rbe i t enden Indus t r i e der Nieder lande im J ah re 1973 zu erkl/~ren, u n d zwar des Hande l s m i t der We l t i n s g e s a m t u n d m i t drei Gruppen von Li indern (mark twi r t schaf t l i che Industriel /~nder, En twick- lungslAnder, S taa tshandels lAnder) . Die Ergebnisse zeigen, dab sowohl die Neo- F a k t o r p r o p o r t i o n e n h y p o t h e s e als auch die Neo-Technolog iehypo these nli tzl iche Konzep te s ind, u m B e s t i m m u n g s f a k t o r e n ftir die k o m p a r a t i v e n Vortei le der nieder- 1/~ndischen Indus t r i e s ek t o r en herauszuf inden . Die N e o - F a k t o r p r o p o r t i o n e n h y p o t h e s e h a t zu e iner s ign i f ikan ten Erkli~rung des H a n d e l s m l t der We l t i n sgesamt , m i t den m a r k t w i r t s c h a f t h c h e n I n d u s t r i e l a n d e r n n n d den En tw ick lungs l~nde rn - - aber n i ch t m i t den Staatshandels l /~ndern - - gefiihrt . Die ver f i igbaren D a t e n h a b e n es u n s auch erm6gl icht , die Re levanz der Neo-Techno log iehypo these ftir den H a n d e l m i t der Wel t u n d m i t den S taa t shande l s lAndern - - n ich t jedoch mi t den Indus t r i e - li~ndern u n d den En twick lungs lAndern - - zu best i i t igen.

R ~ s u m 6 : Les p ropor t ions des facteurs , la technologie , et la s t ruc tu re du commerce ex t6r ieur de l ' i ndus t r i e des Pays -Bas . - - Le su je t de cet art icle es t u n essai d 'ex- p l iquer la s t r u c t u r e du commerce ex t6r ieur de 1973 des i ndus t r i e s manufac tu r i~ re s des P a y s - B a s avec le m o n d e en t ie r et avec t ro is groupes des p a y s (6conomies de march6 d6velopp6es, 6conomies en voie de d6ve loppement , 6conomies planifi~es). Les r6su l t a t s ob t enus i n d i q u e n t que la neo-hypo th~se des p ropor t ions des fac teurs et la neo-hypo th~se de technologie son t en fai t des concepts ut i les en recherche

Page 16: Factor proportions, technology and Dutch industry’s international trade patterns

Dutch Indust ry ' s International Trade Patterns I77

des d d t e r m i n a n t s d ' a v a n t a g e compa ra t i f des sec teurs m a n u f a c t u r i e r s des Pays* Bas. La neo -hypo thbse des p ropor t ions des fac teurs a condu i t ~ une expl ica t ion s ignif icat ive pou r le commerce ex tdr ieur avec le m o n d e et avec les p a y s ddveloppds e t ddve loppants , m a t s pas pou r le commerce ext@rieur avec les dconomies planifides. Les donndes d isponibles on t pe rmi s de d d m o n t r e r l ' i m p o r t a n c e de la neo-hypo th~se de techuologie pour le commerce ex tdr ieur avec le m o n d e et les dconomies p lan t - tides, b ien que pa s pour le commerce ex tdr ieur avec les p a y s ddveloppds et ddvelop- pan t s .

R e s u m e n : Proporc iones de factores, tecnologia y los pa t rones de comerc io in te rnac iona l de la i ndus t r i a ho landesa . - - E1 t e m a de este ar t iculo es u n i n t en to de expl icar la e s t r u c t u r a del comercio de las i ndus t r i a s m a n u f a c t u r e r a s ho l andesas en el afio 1973 con el m u n d o en su con jun to y con t res g rupos de paises (economias de mercado desarrol ladas , paises en desarrol lo y economias c e n t r a l m e n t e planifi- cadas) . Los resu l t ados ob ten idos con f i rman que t a n t o la neo-h ip6tes i s de proporc i6n de factores como la neo-h ip6tes i s tecnologia son e fec t ivamen te conceptos tittles en la b f i squeda de d e t e r m i n a n t e s de las v e n t a j a s c o m p a r a t i v a s de los sectores m a n u - fac tureros holandeses . L a neo-h ipdtes i s proporc idn de factores ha l levado a explica- ciones s igni f ica t ivas del comercio con el m u n d o , y con los paises desar ro l lados y e n desarroUo, pero no de1 comercio con las economlas cen t r a lmen te planif icadas. Los da tos a la m a n o t a m b i d n nos ban capac i tado pa r a es tablecer la re levanc ia de la neo-h ip6tes i s tecnologia pa r a el comercio con el m u n d o y i~ts economias c e n t r a l m e n t e planif icadas, pero no p a r a el comerc io con los palses desarro l lados y e n desarroUo.

Welt~altliches Archly Bd, CXVI. xs