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M.R. Jamilov, R.M. Jamilov: Factor-Augmented J-Curve

exist only 4 major clusters of industries which differ in terms of factor intensiveness:
labor, capital, technology, and land oriented sectors. In the factor analysis stage we
order the procedure to extract 4 common factors out of the set of N industries, and then
examine the factor-specific loadings of each industry. If we observe that the industries
which are supposedly labor-intensive (such as textile or clothing manufacturing, for
example) do indeed load highly on one of the factors, and if a similar situation holds
with the remaining factors, then we can argue that the theory is not only positive but
also normative. Finally, while this paper‟s main contribution is in the introduction of the
factor analysis approach, future studies should enhance the empirical strategy with
further state-of-the-art regressions, such as the Dynamic OLS (DOLS), Two-State
Least-Squares (2SLS), Cointegrated time-series, Vector Autoregressions (VAR), etc.
The new frontier is there for the taking.
References
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