The key success factors for cross-border dynamism are: first, economic complementarity due to differences in factor endowment
concerning labour, land and capital across the different territories; second, geographical proximity enabling efficient organization of production; and third, political commitment supporting macroeconomic stability, investments in infrastructure, property rights protection and reducing trade and investment barriers (Hutchinson and Chong 2016).
The latter includes factor endowment
, manufacturing base, productivity of factors of production and other factors bearing upon cost, scale and quality of the output, such as the level of technology, production processes and the overall macroeconomic environment.
The neoclassical theory assumes that international trade is governed by the comparative advantage principle, which is rooted in the factor endowment
differences of countries.
Following a long development of models that tried to construe trade based on production advantages and production factor endowment
and subsequent to the onset of the Leontief paradox, the theory, first proposed by Staffan Burenstam Linder in 1961, asserted that the structure and similarities of demand found in world economies dictated larger flows of trade (Linder, 1961).
where [i.sub.ht] denotes returns to each sector-specific factor of production, [x.sub.ht] = [h.sub.Dt]/[N.sub.ht] is the factor endowment
of each elite individual, and [[lambda].sub.h] [equivalent to] [([mu][sigma]).sup.[mu][sigma]] ([mu][(1 - [sigma])).sup.[mu](1 - [sigma])][(1 - [mu]).sup.(1 - [mu])] with [mu] = 1 for landowners.
In his 2008 article, Vass addressed the relationship between an increase in a region's factor endowment
of venture capital and regional rates of innovation.
The trade literature has established that while a rise in a factor endowment
must benefit a small open economy, it may hurt a large nation because of terms-of-trade effects.
According to the HOV model, the factor content of trade should be determined by countries' factor endowments
. If all countries shared a common technology matrix [B.sub.total], under the assumption of full employment, the factor endowment
of country m ([V.sup.m]) would equal factor input in production (left hand side of equation (5)):
Furthermore, the manufacturing capabilities of these countries are not determined by factor endowment
This table compares the patterns of production factor endowment
in countries with the demand for production factors for several crops.
* In Eastern Europe the share of area under corporate farms ten years after the transition, ranged from 90 per cent in Slovakia, to 60 per cent in Kazakhstan, and 45 per cent in Russia (but less than 10 per cent in Albania, Latvia, and Slovenia), reflecting countries' factor endowment
, institutional structure, and the way the reforms were implemented.
Vertically differentiated trade and differences in factor endowment
: the case of agri-food products between Hungary and the EU.