International Trade Theories Predicting Regional Comparative Advantage and Wage Differentials

Regions in the North and Midwest U.S.  have experienced severe population declines as the rest of the country has continued to attract factors with employment opportunities in the high-tech service sectors. The changes have been significant enough to alter the characteristics and typologies of some major metropolitan areas within these regions. Cities have undergone visible transformations in the skills of their factors of production in attempts to gain a comparative advantage in specific new occupations that will determine their future economic growth.

This paper investigates whether the transformation of dominant occupational categories has occurred and consequently created a more competitive labor market among regions. More specifically, it draws upon some fundamental principles of the Heckscher-Olin Model which predicts outcomes in regions with comparative advantages, engaged in international trade.  The basic model’s assumptions are easily adaptable to analyzing the outcomes of factor endowments at the regional level. The Regions are defined as four distinct and inclusive areas of the United States, as designated by the Bureau of Labor Statistics. 

If regions have truly experienced a transformation in their occupation intensities, the H-O model would predict evidence of developed specializations, higher incomes for those in occupations designated as growth intensive, and evidence of regional comparative advantages.