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Linking Absolute and Comparative Advantage to Intra-industry Trade Theory

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  • Weder, Rolf
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    Abstract

    Two countries, which differ with respect to domestic demand for two groups of differentiated products, are considered in a setting of monopolistic competition where international trade is subject to transaction costs. It is shown that relative differences in demand determine the trade pattern. Each country is a net exporter of that group for which domestic demand is relatively larger--where the country has a comparative home-market advantage. Absolute differences in demand determine relative wages. Thus, the paper argues that the notions of absolute and comparative advantage as found in traditional trade theory also have meaning in new trade theory. Copyright 1995 by Blackwell Publishing Ltd.

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    Bibliographic Info

    Article provided by Wiley Blackwell in its journal Review of International Economics.

    Volume (Year): 3 (1995)
    Issue (Month): 3 (October)
    Pages: 342-54

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    Handle: RePEc:bla:reviec:v:3:y:1995:i:3:p:342-54

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    Web page: http://www.blackwellpublishing.com/journal.asp?ref=0965-7576

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    Cited by:
    1. Donald R. Davis & David E. Weinstein, 1998. "Market Access, Economic Geography and Comparative Advantage: An Empirical Assessment," Harvard Institute of Economic Research Working Papers 1850, Harvard - Institute of Economic Research.
    2. Rolf Weder, 2003. "Comparative home-market advantage: An empirical analysis of British and American exports," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 139(2), pages 220-247, June.
    3. Federico Trionfetti, 1999. "On the home market effect: theory and empirical evidence," LSE Research Online Documents on Economics 20215, London School of Economics and Political Science, LSE Library.
    4. Davis, Donald R. & Weinstein, David E., 2003. "Market access, economic geography and comparative advantage: an empirical test," Journal of International Economics, Elsevier, vol. 59(1), pages 1-23, January.
    5. Davis, D.R. & Weinstein, D.E., 1997. "Does Economic Geography Matter for International Specialization?," Working Papers 403, Research Seminar in International Economics, University of Michigan.
    6. Donald R. Davis & David E. Weinstein, 1997. "Economic Geography and Regional Production Structure: An Empirical Investigation," Harvard Institute of Economic Research Working Papers 1802, Harvard - Institute of Economic Research.
    7. repec:hal:cesptp:hal-00497693 is not listed on IDEAS
    8. Nicolini, Rosella, 2000. "Local Agglomerations and Trade: an Empirical Investigation," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2000018, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    9. Federico Trionfetti, 2001. "Using home-biased demand to test trade theories," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 137(3), pages 404-426, September.
    10. Keith Head & John Ries, 2001. "Increasing Returns versus National Product Differentiation as an Explanation for the Pattern of U.S.-Canada Trade," American Economic Review, American Economic Association, vol. 91(4), pages 858-876, September.
    11. Crozet, Matthieu & Trionfetti, Federico, 2008. "Trade costs and the Home Market Effect," Journal of International Economics, Elsevier, vol. 76(2), pages 309-321, December.
    12. Zhihao Yu, 2000. "Market Integration and Industrial Structure: Home Market Effects Revisited," Econometric Society World Congress 2000 Contributed Papers 0033, Econometric Society.
    13. Piermartini, Roberta, 2000. "Trade liberalisation and growth: market access advantage," Discussion Paper Series In Economics And Econometrics 0007, Economics Division, School of Social Sciences, University of Southampton.

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