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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, 1996. "Does Economic Geography Matter for International Specialization?," NBER Working Papers 5706, National Bureau of Economic Research, Inc.
    2. Matthieu Crozet & Federico Trionfetti, 2008. "Trade costs and the Home Market Effect," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00497693, HAL.
    3. 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.
    4. Zhihao Yu, 2000. "Market Integration and Industrial Structure: Home Market Effects Revisited," Econometric Society World Congress 2000 Contributed Papers 0033, Econometric Society.
    5. Donald R. Davis & David E. Weinstein, 1998. "Market Access, Economic Geography, and Comparative Advantage: An Empirical Assessment," NBER Working Papers 6787, National Bureau of Economic Research, Inc.
    6. 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.
    7. 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.
    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. 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.
    10. 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.

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