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Technology advantage, terms of trade, and pattern of trade

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  • Cheng‐Te Lee
  • Shang‐Fen Wu

Abstract

We develop a two‐country, two‐sector model of trade, and assume that the differences between two countries are not only the diversities of human capital distributions but also relative production technologies. We find that, in addition to the diversity effect, both the terms of trade effect and the relative technology effect can also matter for the pattern of trade. We prove that, unlike previous results, if combination of the terms of trade effect and the relative technology effect dominates the diversity effect, then a country with more diverse human capital will export goods produced by supermodular technology.

Suggested Citation

  • Cheng‐Te Lee & Shang‐Fen Wu, 2023. "Technology advantage, terms of trade, and pattern of trade," International Journal of Economic Theory, The International Society for Economic Theory, vol. 19(1), pages 166-174, March.
    • Handle: RePEc:bla:ijethy:v:19:y:2023:i:1:p:166-174
    DOI: 10.1111/ijet.12342
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