Paths of development and wage variations

In analyzing the relationship between factor endowments and sectoral per capita output (the paths of development), it was shown empirically that the number of cones was neither one nor three but two, and that all countries fall into one of these two cones. This is a puzzle, because it is inconsistent with large wage variations across economies. This paper attempts to solve this puzzle, introducing complete and incomplete specialization into a multiple-cone model. Empirical results reveal that the two-cone Heckscher-Ohlin (HO) model can be consistent with HO specialization and wage variations across economies.