Analyzing Factor Abundance and Export Competitiveness: Testing the Heckscher-Ohlin Trade Theorem in the Philippines-US International Trade Patterns

Abstract

This study assesses the predictive accuracy of the Heckscher-Ohlin (H-O) trade theorem in the context of US-Philippines trade dynamics. Despite the H-O theorem's assertion that countries export goods in accordance with their abundant factors, our empirical analysis reveals a consistent negative correlation between labor and exports in both nations. This finding aligns with Leontief's Paradox, indicating a departure from conventional economic theories. The identification of this paradox prompts a reevaluation of established models to foster a more nuanced understanding of the multifaceted factors influencing international trade. In light of these insights, recognizing the enduring relevance of the H-O theorem as a foundational framework, it becomes essential to complement it with a comprehensive approach for analyzing the intricate interplay of factors shaping trade relationships between nations. This acknowledgement enriches our understanding of trade dynamics, acknowledging both the merits and limitations of theoretical frameworks in capturing the evolving nature of International Trade.