DISCUSSION PAPER Report No,: DRD95 SOURCES OF CHANGES IN FACTOR INTENSITY OF TRADE by Moshe Syrquin Harvard University and Bar-Ilan University and Shujiro Urata The World Bank September 1984 Development Research Department Economics and Research Staff World Bank The views presented here are those .of the author, and they should not be interpreted as reflecting those of the World Bank AR-013/SUD/119 SOURCES OF CHANGES IN FACTOR INTENSITY OF TRADE by Moshe Syrquin Harvard University and Bar-Ilan University and Shujiro Urata The vlorld Bank September 1984 This paper was prepared for the World Bank Research Project, "A Comparative Study of the Sources of Industrial Growth and Structural Change," (RPO 671- 32). The authors are indebted to D. Go for efficient research assistance, and they have benefited from comments by B. Balassa, K. Maskus, J. de Melo, J. Tybont, and L. Westphal. The World Bank does not accept responsibility for the views expressed herein which are those of the authors and should not be attributed to the World Bank or to its affiliated organizations. The findings, interpretations, and conclusions are the results of research supported by the Bank; they do not necessarily represent official policy of the Bank. The designations employed, the presentation of material, and any maps used in this document are solely for the convenience of the reader and do not imply the expression of any opinion whatsoever on the part of the World Bank or its affiliates concerning the legal status of any country, territory, city, area, or of its authorities, or concetning the delimitation of itG boundaries or national affiliation. AR-013/SUD/119 Abstract The factor proport.ions hypothesis of trade theory has been the subject of a large number of empirical tests but few of them have analyzed the changes in tha factor content of trade in a country over time or across countries .. This study analyze~s the changes in factor intensitv of trade in Mexico, Japan, Korea~ Taiwan and Israel during the 1960s. It traces back the changes in capital-labor ratios in the production of exports and import substitutes to variations in the sectoral composition of trade, changes ln factor-output ratios (labor and capital), and changes in input-output coefficients. AR-013/SUD/119 - 1 - I. Introduction Following the seminal work of Leontie£ (1953) on U.S. trade, a number of studies have examined the factor intensity of foreign trade and its changes over time for various countries in an attempt to test the validity of the "factor content version" of the Hecksher-Ohl:fn theorem on the structure of tlit' foreign trade. jj Although this method has been shown not to be a valid test of the Hecksher-Ohlin theorem (Leamer 1980), measures of the factor i.ntensity of trade are still useful in describing a country's trade structure. In previous studies, factor intensity measures for a country for a given period have not always been consistent with the factor endowments of that country. Changes in factor 1ntensity, however, do seem to be consistent with changes in factor endowments. 1J In spite of the interest in analyzing the levels and changes in the factor intensity of trade, very few studies have investigated the causes of these changes over time. Weiser (1968) examined the causes of changes in labor requirements of exports and imports in the United States between 1947 and 1962 by explicitly decomposing these changes into various factors in two steps in a discrete time period framework. He first decomposed the variation in labor requirements into the changes in production structure, trade pattern, and interaction of the two factors, and then further decomposed the changes in productl.on structure into the changes in labor-output ratios and in input- output coefficients. The changes in production and trade structures each contributed about 40 percent, while the interaction factor accounted for about 20 percent. In the second step, the changes in labor-output and in input- output coefficients contributed about 60 and 40 percent respectively. Hong (1981) anaJ~~6d the causes of changes in the Korean trade structure during the 1966-73 period by applying basically the same method as Weiser (although AR-013/SUD/#9 - 2 - Hong's method is less direct). He found that on average 92 percent of the increase :fn capital-labor intensity i.n Korean export producti.on was due to changes in production structure and 8 percent to changes in export composi- tion. 1J Heller (1976) applied a method similar to Hong's to the Japanese trade structure between 1956 and 1968 without explicitly computing contribu- tions of factors; he found that the increases in the capital intensity of the Japanese exports were attributable both to changes in export composition and to the increase in capital .intensity of the production process. tJ In this paper we examine the changes in the factor intensity of trade and their sources for Israel (1958-72), Japan (1960-70), Korea (1963-73), Mexico (1960-70), and Taiwan (1961-71) by applying a decomposition method based on a continuous time period. Similar to the approach of Weiser and Hong, our method decomposes changes in factor intensity of trade into changes in trade structure, factor (capital and labor)-output coefficients, and input- output coefficients. However, because our method is a discrete approximation to the Divis:fa index, it has several advantages over theirs: first, it avoids the arbitrariness of the two-step procedure; and second, it eliminates the problematic jnteraction term which inevitably arises :fn a discrete fixed weights decomposition. The period analyzed for each economy corresponds to a tjme of rapJd growth in its economic history. Thus, we may expect the results to show distinct patterns. In section II the methodology used for the decomposition of changes in the factor intensity of trade is derived. Section III describes some characteristics of the sample economies for the analysis. Section IV briefly discusses the changes in the factor intensity for these five economies, AR-013/SUD/119 - 3 - while section V reports and analyzes the causes of changes in the factor :intensity of trade. Some conclud:! ng comments are presented in sect.ion VI. II. Methodology Our methodology decomposes the rate of change in factor intensity uf trade into rates of change in the commodity composition of trade; the factor (capital and labor)-output coefficien.t; and the input-output coefficient. The approach is similar to growth accounting excercises that decompose observed changes into their sources but without necessarily revealing the causal links. Define factor Jutenaity of trade (F) for a country as equation (1). F e ~ ~ kirijej i j t} ki rijmj ( 1) F =- = F I m I I .9..i r ij ej I I .9..1 rijmj i j i j where ratio of total capital to total labor in exports ratio of total capital to total labor Ju imports capital-output ratio in sector i labor-output ratio in sector 1 ith row, jth column element of Leontjef inverse ( I-A) -1 , where A is the input-output coefflcjent matrix and I is an identity matrix jth sector•s export share to total exports (e. =E./I E., where EJ. Js the export value for sector j) J J j J jth sector's import share to total !mports where M. is the import value for sector j) J AR-013/SUD//19 - 4 - In equation (1) the numerator measures the capital-labor ratio for the production of output which satisfies export demand, while the denominator shows the capital-labor ratio for the production of output in order to satisfy import demand. 4/ Therefore, if F is greater (less) than unity, then a country's exports are said to be capital (labor) intensive relative to its imports. Equation (1) indicates that factor intensity of trade depends on sectoral factor employment (capital and labor), interindustry relations and sectoral pattern of fo~eign trade. Define the fojllowing: s. r .. tj s ~ ~J k, R.; t = e,m) (2) Cli. Jt = (s I I • s. rij t. L J i J s s ( 3) sit = I Clij t (s k, R.; t e,m) j s s ( 4) yj t I aij t (s k, R.; t e, m) 1 a~jt indicates the share of the total use of factors (labor or capital) by sector i (labor or capital) required to produce output j, which is necessary s s to deliver tj (exports or imports). Sit' the row sum of aijt' measures the amount of factor s needed to produce output i to be delivered to satisfy the d·emand for exports or imports for all the sectors (I tj where t. = e. m.). j J J, J (~ s yj~. , the column sum of a . , shows the total amount of factor s required to t 1] t produce output which satisfies tj. Denoting the rate of change defined as ~x.by ~, we obtain the decomposition of the rate of change in factor intensity of trade (F) into the rate of change in the following three factors: trade structure, factor-output coefficients, and input-output coefficients. The rate of change in trade AR-013 /SUD/ 119 - 5 - structure in turn consists of the rate of change in export and import structures, while the rate of change in factor-output coefficients comprises the rates of change in capital-output and labor-output coefficients. rate of change in: "' k R. ( 5) F = ? J ej (yje - yje) export structure "' k R. - jL m j (yjm - yjm) import structure A k + I kl ( 8ie - 8k im ) capital-output coefficient) factor 1 f output - I ii ( 6ie R. cr~ ) labor-output coefficient ) coeffi- im 1 cient k R. input-output coefficient + I I r ij (ex lje - cxi. ) Je i j k i - (a - cxi. ) ijm Jm All the expressions in parentheses in equation (5) are calculated as means of initial and termin&l values, and growth rates are computed by log di.fferences. The growth accounting equation (5) is thus a Tornqvist-Theil quantity index which has been used as a discrete approximation of the Dlvisia index (see Diewert 1976). An interpretation of the weights attached to each rate of change is straightforward. The weight attached to the rate of change in export (import) structure is the difference between the total amount of capital and that of labor necesary to produce ej (mj) units of exports (imports). The weight gi·-.ren to the rate of change in factor-output coefficients is the difference between the amount of respective factor AR-013/SUD/119 required to produce all the exports and that required to produce all the imports. Finally, the weight attached to the rate of change in input-output coefficients is the spread between two differences: those between the amount of capital and of labor needed to produce ej units of exports; and those between the amount of capital and of labor required to produce mj units of imports. In the analysis only the factor intensity of trade in manufactures (Hecksher-Ohlin goods) is exam:f.ned. This is because an inclusion of primary commodities in the analysis would make an interpretation of the results difficult since the production of primary commodities requires not only capital and labor as primary factors of production, but also natural resources. Also :In the analysis total input-output coefficients, which are computed by utilizing both domestic and :I.mported intermediate goods, are applied to compute factor intenslties of both exports and import substitutes. III. The Sample The sample consists of four semi-industrial economies (Israel, Korea, Mexico, and Taiwan) and Japan at various points in time during the 1958-73 period. The sample was selected on the basis of the availability of comparable input-output data and capital and labor coefficients covering a period of substantJal growth, and of change in the structure of trade. 2J During these years Japan, Korea, Taiwan, and Israel pursued outward-looking export promotion strategies coupled with varying degrees of control over imports, while Mexico followed inward-looking import substitution stratetegies. AR-013/SUD/119 - 7 - Table 1 presents selected indicators of growth and structure for the five economies. As a result of outward-looking strategies the smaller, more open economies Israel, Korea, and Taiwan -- significantly increased the share of trade in GDP during the periods shown, particularly the share of manufactured exports and imports. At the other extreme, Mexico reduced its trade ratios due to import substitution policies. In spite of export promotion policies, Japan maintained its relatively low shares throughout the period because of a rapid expansion of its domestic market. The share of manufactured goods iu imports and exports shows some interesting patterns across economies. For Mexico and Israel the share of manufactured goods iu imports is significantly higher than that in exports throughout the period, while Japan experienced a totally opposite pattern: a high share of manuf.qctured goods in exports .and a low share in imports. Korea and Taiwan had a relatively balanced pattern. These differences stem mainly from disparities :f.n factor endowments and in the level of economic development. Japan, poor in natural resources, had to rely on imports for supply of raw materials, whereas economies rich in natural resources such as Mexico and Israel, exported signif1cant quantities of products based on these resources. Except for Japan, which had reached a matured stage of development compared to the others, all the economies relied on foreign supplies for manufactured goods used primarily for production. The share of manufactured trade in total trade increased over time in all economies except Japan, where it had already reached a high level by 1960. In Korea and Taiwan (if food processing i~ excluded) the increase was particularly noteworthy. In every case the i.mportance of intermediate products relative to total output increased. The net impact of the 1ncreased density of the matrix of inter- industry relations on the factor content of trade is discussed in Section v. ~ - 0 w ........ en Table 1: Structural Characterlstlcs § ........ ~ \0 GNP per Share of Share of Annual Manufactures Capita Growth Shares in GDP Interllledlate Pop'UlatJon (1980) Trade !n Total Products in Rate GDP (percent) (percent) (111UUons) (U.S.$) (percent) I11ports Gross Ouptut Exports I11ports Exports (percent) Hex! co i.960 1970 36.0 50.4 935 1310 -- 7.0 12.6 9.7 10.3 89.9b 35.9 37.7 7.7 91e4b 40.8 38.1 Japan 1960 1970 94.1 104.3 1470 3705 - 10.4 10.8 47.6 84.3 51.5 10.8 9.5 10.8 42.6 77.0 54.3 co Korea 1963 1973 27.0 32.9 290 630 - 16.3 4.9 69.0 48.5 43.6 10.2 33.0 29.9 81.5 79.5 50.4 Taiwan 1961 .t971 11.0 14.8 450 830 -- 9.5 19.8 12.8 72.4 76.0 (26.8)c 40.8 32.6 35.1 76.2 82.6 {70.2)c 50.8 Israel 1~58 l~l72 2.0 3.1 2080 4525 - 25.7 13.,7a 67.6 43.9 39.5 9.2 39.4 28.0 83.9 49.6 45.4 a. 1960. b. Shares iu .erchandlse exports. c. Figures l111 parentheses exclude exports of the food processing sector. Sources: World Tables: The Third Edition, 1983; and Chenery, Robinson, and Syrquln, 1984. AR-013/SUD/1!9 - 9 - IV. Changes in Factor Intensity of Trade The factor intensity of trade for the five economies for various years is reported in Table 2. It is computed by incorporating current year values in constant prices in equation (1). 1f Capital-labor ratios for the production of exports (exports column) and for import substitutes (imports column) are obtained respectively as a numerator and denominator of equation (1), while the ratios of ~hese two values [F in equation (1)] are shown in the last column. Capital-labor ratios for the production of exports and of import substitutes (exports and imports colunmns) can be meaningfully compared across periods for a given country, but not across countries, since the units used in the valuation of capital and labor differ among the countries. However, a comparison of the ratios between capital-labor £oefficients of production for exports and those for import substitutes (exports/imports column) can be performed not only across periods but also across countries because these values are free of units. Columns 1 and 2 in Table 2 indicate that capital-labor ratios for the production of both exports and import substitutes increased continously over time in all the economies. :E) This phenomenon of capital deepening in production is consistent with the observation that the accumulation of capital is usually faster than that of labor in the process of development. At the same time, the rate of increase in these ratios was not uniform across th1e economiesQ Capital-labor ratios in the production of exports increased faster than those ln the production of import substitutes in Mexico, Japan, 2J Taiwan, 1Qj and Israel, J1! while the rate of increase in capital-labor ratios AR-013/SUD/#9 - 10 - Table 2: Factor Intensity of Trade (capital/labor ratios) Exports Imports Exports/Imports (Fe) (Fm) (F) Mexico 1960 0.66 0.93 0.71 1970 1.09 1.23 0.89 Annual Growth Rate (%) 5.1 2.8 2.2 Japan 1960 0.89 0.98 0.91 1970 2.50 2.38 1 .. 05 Annual Growth Rate (%) 10.9 9.4 1.5 Korea 1963 0.39 0.44 0.89 1973 0.73 0.'38 0 .. 74 Annual Growth Rate (%) 6 .. 4 8 .. 4 -1.8 Ta1wan 1961 0.48 0 .. 62 0.77 1971 0.75 0.92 0.82 Annual Growth Rate (%) 4.4 4.0 0.4 Israel a 1958 0.52 0.46 1.14 1972 1.02 0.86 1.19 Annual Growth Rate (%) 4.9 4.6 0.3 a. 1'he results for Israel are chained from separate computations for 1958-65 and 1965-72. In the first period labor is measured Jn rnau days and in the second period in man hours. AR-013/SUD/119 - 11 - in the production of import substitutes outpaced that in the export production in Kor.ea • .JlJ In spite of capital deepening in production in all the economies and in spite of capital deepening in the factor intensity of trade (exports/ imports) in Mexico, Japan, Taiwan, and Israel, the factor intensity of trade measure exceeds unity only for Japan after 1965 and for Israel for the entire period. V. Sources of Changes in Factor Intensity of Trade The rate of change in factor intensity is decomposed into the changes in the following three factors in equation (5): trade structure, factor- output coefficients, and input-output coefficients. Since the change in factor intensity of trade (F) is the difference between the change in factor intensity of exports (Fe) and of imports (Fm), and since the change in factor intenstties in exports and in imports often offset each other to result in a small change in factor intensity of trade, sources of changes in factor intensities of exports and imports are separately computed and presented in Table 3 in addition to the sources of changes in factor intensity of trade. 1]j Table 3 indicates significant capital deepening in the production of both exports and import substitutes in all cases, particularly in Japan and Korea. TI1e main reason for the increase in capital intensity in the production of exports and import substitutes is the change in factor-output ratios. As shown in Table 4, this increase in capital intensity reflects the fall in labor-output ratios (increase in labor productivity). Capital output ratios actually declined (except in Japan where they increased marginally) but not fast enough to offset the fall in labor-output ratios. ~ 0 .,_. w "' en Table 3: Sources of Changes Jn Factor Intenslty of Trade § ""- ~ \0 Table 4: Changes ln Factor-Output Rat:l.os ~ Capital-Labor Ratio ln the Product:f.on of: ExEorts ImEorts ExEort:s/ImEort:s Annual Annual Annual % Due to: % Due to: % Due to: Growth .... .... Growth .... ,.. Growth ,. ,.. Rate k R, Rate k R, Rate k R, Mexico 3.1 -12 112 2.9 -21 121 0.2 141 -41 Japan 8 .. 5 2 98 8.8 7 93 -0.2 -188 88 Korea 6.7 -25 125 8.1 -18 118 -1.4 -13 -87 ..... w Tal wan 2.5 -273 373 3.8 -209 309 -1.4 91 -191 Israel 4.5 -46 146 4.9 -53 153 -0.4 116 -216 a. Changes in total factor-output ratios ~th an uncharged trade structure and ~nput:­ out:put matrix. Percentage changes due to changes In labor-output: coefficients (1) should be interpreted as those due to a reduction in 1 since the labor-output: coefficient enters as a denominator in the computation of capital-labor ratios. k " 1 Exports: : (ki aie - !1 ale) ( 1) k A 1 Imports: I: (kl aim - 11 aim) (2) 1 Exports/Imports: (l) - (2) AR-013/SUD/1!9 - 14 - The net result :ln every case was an increase in the capital-labor ratio required to produce a given structure of exports and import substitutes with a fixed input-output matrix. The effect of changes in the composition of trade was to increase the capital intensity in the production of exports (except in Korea) and to reduce the capital intensity in the production of import substitutes (except in Taiwan). The increased density of the input~output matrix leads in general to an increase in the capital intensity of the output required to produce both the export and the import vectors. The net impact of these effects on the factor intensity ratio F is less uniform. The increase ln capital intensity due to the changes in factor- output ratios w~th a given trade structure and input-output matrix is faster in imports than in exports, leading, by itself, to a decline in the factor intensity ratio F. The decline in labor-cutput ratios :f.s in general the main cause of the change in capital intensity. The effect of changes in trade structure on factor intensity goes generally in the opposite direction for exports and for import substitutes, resulting ln a relatively large positive contribution to the changes in. factor intensity. The impact of changes in input-output coefficients is to increase the factor intensity in F in all cases except Japan. The magnitude of these effects, however, is relatively small. ill VI. Conclusions An analysis of changes in factor intensity of trade for Mexico, Japan, Korea, Taiwan, and Israel during the 1960s revealed that capital-labor intensity in the production of both exports and import substitutes increased in all casesG Moreover, the rate of change in capital-labor intensity was faster in the production of exports than of import substitutes in all AR-013/SUD/#9 - 15 - economies except Korea. Without information on the level of factor endowments and their changes in these economies as well as in their trading partners, it is not possible to test the validity of either the static or the dynamic version of the Hecksher-Ohlin theorem. In spite of substantial variations in· the level of economic development, in economic structure, and in development strategies in the economies analyzed, the sources of changes in factor intensity for exports and import substitutes are to be mainly attributed to the changes in factor-output coefficients. Changes in factor-output coefficients are in turn due mainly to the changes in labor-output coefficients~ Although these findings are quite robust among the economies studied, observations should be made for a wider variety of economies. Finally, in explaining the changes in factor intensity of trade (exports/imports), changes ln trade structure are found to be very important. Since this finding implies possible effects of trade policies on factor intensity of trade, further studies of this relationship using detailed data on trade policies such as Import protection are warranted. AR-013ISUDIII9 - 16 - APPENDIX In this appendix the derivation of equation (5) is described. Letting x denote the rate of change of a variable x as defined dx the rate of change i.n factor intensity of trade (F) can be expressed by as - x' the rate of change in the right hand side variables in equation (1) as (A-1). (A-1) Equation (A-1) can further be ·expanded as (A··2). ,. ,.. (A-2) F = I I (k 1k1 rijej + r 1 jk1 r 1 jej + e.k..tr J .J.. 1 J .ej) I L L kiri .e. i j J J i j ,. - I I i j (ti iirijej + ri.t r .. e. + e. t 1 r i.e.) I J 1 ~J J J J J I 2 t 1 r 1 jej i j - I I (kikirijmj + r 1 jk1 r 1 jmj + m.k r .m.) I L L kiri.m. J 1 1J J i j J J i j ,. + ll U.i .ti rijmj + r 1J.t-'r .m. + m.iir 1 .m.) .....1 J J J J J I I jI iirijmj i Utilizing definitions (3) and (4), (A-2) can be transformed into (A-3), which is equation (5) in the text. AR-.013/SUD/119 - 17 - ,. ,. k k F = L e. R. (yje - yje) - jl: ~j R. (yjm - yjm) j J A A k k i i + I ki ( e;ie - 6im) - l: ii ( 6ie - 6im) i i AR-013/SUD/#9 - 18 - Table A-1: Sectoral Classification Sector Israel Japan Korea Hexico Taiwan Food P:rocessing 1 1 1 1 1 Texti1 ~es 2 2 2 2 2 Clothio.g 2 2 3 3 3 Leathe1r 2 2 3 4 3 Lumber and Wood 3 3 4 5 4 Paper '• 4 5 6 5 Printing 4 5 6 7 5 l1i s cel1 aneous 5 6-7 7-8 8 6-7 Rubber 6 8 9 9 8 C'hemicals 7 9 10 10 9 P1etroleum and Coal 7 10 11 10 10 Nonmetallic Minerals 8 11 12 11 11 Basic Metals 9 12 13 12 12 Machinery 10 13 14 13 13 1'ransport Equipment 11 14 15 14 14 Agriculture and Mining 12-13 15-17 16-17 15-16 15-18 Infrastructure & Services 14-17 18-23 18-22 17-21 19-23 AR-013/SUD/119 '"' 19 - ---- FOOTNOTES See Deardorf ( 1983) for a sUlrvey of theoretical literature and 1! empirical studies f~.>r the Unl ted States. For applications of the Leontief method to other ~:outltries see Tatemoto and Ichimura ( 1959) and Heller (1976) for Japan, Hong (1981) and Westphal and Kim (1977) for l<\.>rea, Kuo (1983) for Taiwan, and Carvalho and Haddad (1981) for Brazil. See Heller (1976) for Japan, Hong (1981) and Westphal and Kim (1977) for Korea, and Maskus (1983) for the United States. 1/ Computed from Table 8.13. !:J rij in equation (1) captures both direct and indirect demand for the production of output. The gross measure (direct and indirect) rather than the dlrect measure has been shown to be appropriate for an analysis of the factor intensity of trade [see Deardorff (1982) and Hamilt10n and Svensson (1983)]. 2.J Although there is some controversy over the appropriate coefficients (either total or domestic) in the computatlon of factor intensity of exports, we employed total coefficients for two reasons. First, the decomposition formula becomes more complicated otherwise, making an interpretation of the results difficult. Second, the changes induced by incorporating domestic coefficients for exports are small. Y The data came from a World Bank research project on "Sources of Industrial Growth" (Chenery, Robinson, and Syrquin). Publication is forthcoming. 1f The level of aggregatlon was approximately 23 sectors in every case, with over 11 of them in manufacturing. The level of aggregation in each country and the classification of the manufacturing sectors are shown in Table A-1 in the Appendix. Imports include nominal tariffs and are regarded as competitive. ~ Westphal and Kim (1977) analyzed changes in factor intensity for Korea between 1960 and 1968 by using input-output and factor-output coefficients for 1968 for the entire period. Thus they analyzed the changes in factor intensity due only to the changes in trade composition. Unlike us, they found that capital-labor ratios for the production of exports declined during the period. This results from ignoring the changes in production structure (see Table 3). AR-013/SUD/119 - 20 - 2f In his studies on Japan between 1956 and 1968, Heller (1976) found that capital-labor ratios of Japanese exports increased continuously because of a shift in the composition of exports toward capital·· intensive goods and because of relatively faster deepening in the capital intensity of these sectors. Urata (1983) also found that Japan's exports became more capital intensive relative to its imports between 1967 and 1975 by conducting a regression analysis. J!2! Kuo (1983) also found that Taiwan's exports were more labor intensive than its exports during the 1961-71 period. However her findings, unlike ours, indicate that Taiwan's exports were becoming more labor intensive compared to its imports over the period. She included the primary sector in her study, which uses labor-intensive technology and which experienced an increase in export surplus in the period considered. o 1lf For Israel, see Halevi (1983). 11J Hong (1981) found that capital-labor intensity increased faster in exports than in import substitutes between 1966 and 1973. Using the 1970 producti0n structure, Hong (1976) observes a decline in the factor intensity from 1963 to 1966. Analyzing the 196.3-70 and 1970- 73 period separately, we observed the same shift in thE~ direction of changes in factor intensity from negative to positive. 13/ The separate results for changes in factor intensities of exports and import aubstitutes are obtained by grouping the elements in equation (5) relating to Fe and those affecting Fm: (t = e, m) 14/ An analysis for two subperiods for Korea (1963-70 and 1970-73) reveals that the contribution from changes in trade structure changed from substantially negative for the 1963-70 period to positive for 1970-73. AR-0 13 I SUD I 119 - 21 - REFERENCES Carvalho, J.L. and C.L.S. Haddad (1981), "Foreign Trade Strategies and Employ- ment in Brazil," in Trade and Employment in Developing Countries Volume I, edited by A.O. Krueger, H.B. Lary, T. Monson, N. Akrasanee, University of Chicago Press, pp. 29-81. Chenery~ H. B., S. Robinson, and M. Syrquin, Industrialization and Growth, Oxford University Press, forthcoming. Deardorff, A.V. 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