Capital Abundance and Developing Country Production Patterns

Estimation of Rybczynski e®ects in a sample of 14 developing countries over 1982-1992 reveals a puzzle: labor-intensive manufacturing sectors tend to expand and capital-intensive manufacturing sectors contract as country capital abundance increases, after allowing for changes in technology, skill, and trade barrier. Empirical tests show strong evidence of multiple diversi ̄cation cones in the full sample. The puzzle remains however when the estimation is performed on a subsample of seven countries located in a single diversi ̄cation cone. We provide an argument that the puzzling production pattern, while contradicting the standard one-cone trade model, is consistent with multi-cone trade models.