A Research on the Industrial Pollution and the Factor Content of Trade Model

Importance of climate change and industrial pollution has been increased with recent unusual natural disasters. Many economists use the idea of climate change and industrial pollution in the models of economics. This research constructs the modified factor content of trade models. This paper adds variables for climate change and industrial pollution to the trade vector. Concretely, this paper adds industrial pollution’s data to export vector of the factor content of trade model. With this, this research derives the modified factor content of trade model and conducts three empirical tests; the sign test, the slope test, and the variance ratio test. This research uses ten OECD countries. This research uses the OECD structural analysis (STAN) database, the OECD input output (IO) database, the international sectoral database (ISDB), and main macroeconomic variables. Results of the empirical tests show that this research gets better results with the modified factor content of trade models than classical factor content of trade model. This research compares the results with Davis, Weinstein (2001)’s results. And, this paper concludes that when this research uses variables of climate change and industrial pollution, this paper gets higher explanatory power in explaining the factor content of trade model.