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An Inframarginal Analysis of the Ricardian Model

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  • Cheng, Wenli
  • Sachs, Jeffrey
  • Yang, Xiaokai

Abstract

This paper shows that a 2 x 2 Ricardian model has a unique general equilibrium, and the comparative statics of the equilibrium involve discontinuous jumps. If partial division of labor occurs in equilibrium, the country producing both goods would impose a tariff, whereas the country producing a single good would prefer unilateral free trade. If complete division of labor occurs in equilibrium, both countries would negotiate to achieve free trade. In a model with three countries, the country which does not have a comparative advantage relative to the other two countries, and/or which has low transaction efficiency, may be excluded from trade. Copyright 2000 by Blackwell Publishing Ltd.

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

Volume (Year): 8 (2000)
Issue (Month): 2 (May)
Pages: 208-20

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Handle: RePEc:bla:reviec:v:8:y:2000:i:2:p:208-20

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  1. Houthakker, H. S., 1976. "The calculation of bilateral trade patterns in a Ricardian model with intermediate products and barriers to trade," Journal of International Economics, Elsevier, vol. 6(3), pages 251-288, August.
  2. John Luke Gallup & Jeffrey D. Sachs & Andrew D. Mellinger, 1998. "Geography and Economic Development," Harvard Institute of Economic Research Working Papers 1856, Harvard - Institute of Economic Research.
  3. Oliver Hart & Sanford Grossman, 1985. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Working papers 372, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. Xiaokai Yang, 1994. "Endogenous vs. exogenous comparative advantage and economies of specialization vs. economies of scale," Journal of Economics, Springer, vol. 60(1), pages 29-54, February.
  5. Sachs, Jeffrey D & Warner, Andrew M, 1997. "Fundamental," American Economic Review, American Economic Association, vol. 87(2), pages 184-88, May.
  6. Easton, Stephen T & Walker, Michael A, 1997. "Income, Growth, and Economic Freedom," American Economic Review, American Economic Association, vol. 87(2), pages 328-32, May.
  7. R. Dornbusch & S. Fischer & P. A. Samuelson, 1976. "Comparative Advantage, Trade and Payments in a Ricardian Model With a Continuum of Goods," Working papers 178, Massachusetts Institute of Technology (MIT), Department of Economics.
  8. Timothy Frye & Andrei Shleifer, 1996. "The Invisible Hand and the Grabbing Hand," NBER Working Papers 5856, National Bureau of Economic Research, Inc.
  9. Dixit, Avinash, 1987. "Trade and insurance with moral hazard," Journal of International Economics, Elsevier, vol. 23(3-4), pages 201-220, November.
  10. Henry J. Bruton, 1998. "A Reconsideration of Import Substitution," Journal of Economic Literature, American Economic Association, vol. 36(2), pages 903-936, June.
  11. Rosen, Sherwin, 1983. "Specialization and Human Capital," Journal of Labor Economics, University of Chicago Press, vol. 1(1), pages 43-49, January.
  12. Gomory Ralph E., 1994. "A Ricardo Model with Economies of Scale," Journal of Economic Theory, Elsevier, vol. 62(2), pages 394-419, April.
  13. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
  14. Martin J. Osborne & Ariel Rubinstein, 2005. "Bargaining and Markets," Levine's Bibliography 666156000000000515, UCLA Department of Economics.
  15. John J. Wallis & Douglass North, 1986. "Measuring the Transaction Sector in the American Economy, 1870-1970," NBER Chapters, in: Long-Term Factors in American Economic Growth, pages 95-162 National Bureau of Economic Research, Inc.
  16. John S. Chipman, 1979. "Mill's “Superstructure”: How Well does it Stand up?," History of Political Economy, Duke University Press, vol. 11(4), pages 477-500, Winter.
  17. Bruton, H.J., 1998. "A Reconsideration of Import Substitution," Center for Development Economics 156, Department of Economics, Williams College.
  18. John Luke Gallup & Jeffrey D. Sachs & Andrew D. Mellinger, 1998. "Geography and Economic Development," NBER Working Papers 6849, National Bureau of Economic Research, Inc.
  19. Dixit, Avinash K, 1989. "Trade and Insurance with Adverse Selection," Review of Economic Studies, Wiley Blackwell, vol. 56(2), pages 235-47, April.
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Citations

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Cited by:
  1. Sachs, Jeffrey & Yang, Xiaokai & Zhang, Dingsheng, 2000. "Globalization, dual economy, and economic development," China Economic Review, Elsevier, vol. 11(2), pages 189-209, December.
  2. Cheng, Wenli & Yang, Xiaokai, 2004. "Inframarginal analysis of division of labor: A survey," Journal of Economic Behavior & Organization, Elsevier, vol. 55(2), pages 137-174, October.
  3. Xiaokai Yang & Dingsheng Zhang, 1999. "Endogenous Structure of the Division of Labor, Endogenous Trade Policy Regime, and a Dual Structure in Economic Development," CEMA Working Papers 11, China Economics and Management Academy, Central University of Finance and Economics, revised Apr 2000.
  4. Zhihao Yu, 2003. "IT, Production Specialization, and Division of Labor: A Smith-Ricardo Model of International Trade," Carleton Economic Papers 03-06, Carleton University, Department of Economics.
  5. Soo, Kwok Tong, 2014. "Indivisibilities in the Ricardian model of trade," MPRA Paper 57066, University Library of Munich, Germany.

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