Specialization, Fragmentation, and Factor Intensities: Evidence from Chilean Plant-level Data

We examine the effects of trade liberalization on structural changes at the plant-level and industry-level. The traditional Heckscher-Ohlin (H-O) model predicts an increase in capital-labor ratios in a labor abundant country after trade liberalization. This is in marked contrast to the implications of an otherwise similar model in which trade is the result of costly fragmentation, which predicts a declining pattern of capital-labor ratios following trade liberalization. Empirical results from Chilean plant-level data and industry-level data are rather consistent with fragmentation, which seems to require structural changes caused by trade liberalization.