Essays on the Factor Content of Trade and Education

University of Minnesota Ph.D. dissertation. August 2015. Major: Economics. Advisor: Timothy Kehoe. 1 computer file (PDF); viii, 84 pages.This dissertation consists of three chapters. Chapter 1 contains a revision of the literature regarding the factor content of trade, and in specific human capital as a productive factor. The main theoretical approach regarding this topic was developed by Eli Heckscher and Bertil Ohlin, and is the well-known Heckscher-Ohlin framework. This theory implies that the factor content of the goods a country trades is related to its factor endowment. In this chapter I explore the relevance of this model and I study the diverse empirical tests supporting and also contradicting the theoretical predictions. In addition, I go over the different extensions of the framework that have been developed across time to improve the match between theoretical predictions and empirical findings. In chapter 2 I document that the education intensity of the exported basket of goods is positively related to the education endowment a country has. In addition, I observe that for the case of imports there is no relation. Even though the first empirical finding matches what the Heckscher-Ohlin model predicts, the second does not match. In the model the relation between imports and education endowments is negative. I propose an extension of the original framework including a continuum of goods, a large number of countries and a costly education, where the productive factors are low and high educated workers. This model predicts a positive relation between the fraction of high educated workers and education intensity of the exported basket of goods, and no relation with the education intensity of the imported basket of goods. In addition, I observe that there is dispersion in the data. I show that this dispersion can be generated if the factor content of production in exports is different from the factor content of local absorption. As an example I extend the framework to include a nontraded good that is produced by the government. It is interesting to note that an important contribution of this chapter is the construction of an education intensity index for 92 industries in the United States. Chapter 3 explores the relation between natural resources and the education content of trade. It aims at generating part of the dispersion observed. The idea is that a country that has natural resources ends up exploiting them and exporting them regardless of their labor composition. What really matters in the production of goods like oil, minerals, or fish is whether you have the raw materials. I extend the model with a continuum of goods, a large number of countries and a costly education from chapter \ref{chapter2}, to include a traded good that requires natural resources in its production. Adding this ingredient provides part of the dispersion observed in the data