Cones of Diversification in a Model of Comparative Advantage
Working Paper 95-2
The hypothesis that all countries belong to a single cone of diversification is often used in studies of international trade but seldom tested. In this paper the one-cone hypothesis is tested against a two-cone alternative by clustering countries with similar factor proportions, estimating regressions for gross national product and net exports, and applying standard tests for equality of coefficients. Rejecting the one-cone hypothesis, the paper presents estimates of a two-cone model and considers their implications for factor flows and the prospects of emerging market economies.
JEL classification: F12
Key words: international trade; cones of diversification.