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Ricardian comparative advantage with intermediate inputs

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  • Deardorff, Alan V.

Abstract

This paper examines the role of comparative advantage in a Ricardian trade model with intermediate inputs. The first issue is how to define comparative advantage when there are intermediate inputs. Several definitions are suggested, differing in whether they are based on the total costs of producing goods, on the one hand, or on the labor requirements per dollar of value added, on the other; and differing also – since both approaches require prices of intermediate inputs – in the choice of prices for making these comparisons. Standard “predictions” of trade patterns in terms of comparative advantage are easily derived, but using the value-added definition and actual prices that prevail with trade. These have the usual implications for patterns of specialization based on rankings, or “chains,” of comparative advantage. However, because these prices are not given and may depend on barriers to trade, these comparisons are less informative than in Ricardian models with only final goods. In fact, trade patterns here can be so sensitive to trade costs that any such comparison predicting the trade in particular goods fails to be robust. In spite of this, the gains from trade are unambiguous in these Ricardian models, with imported inputs actually providing an additional source of gain from trade. Also, a weaker statement of the Law of Comparative Advantage, using only a correlation or average relationship between relative autarky prices and trade, is also valid under weaker assumptions than in more general models.

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Bibliographic Info

Article provided by Elsevier in its journal The North American Journal of Economics and Finance.

Volume (Year): 16 (2005)
Issue (Month): 1 (March)
Pages: 11-34

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Handle: RePEc:eee:ecofin:v:16:y:2005:i:1:p:11-34

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Web page: http://www.elsevier.com/locate/inca/620163

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  1. Avinash K. Dixit & Gene M. Grossman, 1981. "Trade and Protection with Multistage Production," NBER Working Papers 0794, National Bureau of Economic Research, Inc.
  2. Ronald W. Jones, 2000. "Globalization and the Theory of Input Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 026210086x, December.
  3. Hummels, David & Ishii, Jun & Yi, Kei-Mu, 2001. "The nature and growth of vertical specialization in world trade," Journal of International Economics, Elsevier, vol. 54(1), pages 75-96, June.
  4. Jones, Ronald W. & Peter Neary, J., 1984. "The positive theory of international trade," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 1, pages 1-62 Elsevier.
  5. W. M. Corden, 1966. "The Structure of a Tariff System and the Effective Protective Rate," Journal of Political Economy, University of Chicago Press, vol. 74, pages 221.
  6. Gene M. Grossman & Elhanan Helpman, 2002. "Integration Versus Outsourcing In Industry Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 85-120, February.
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Citations

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Cited by:
  1. Takeshi Ogawa, 2013. "Application of Jones' Inequality to the n-country, m-good Ricardo–Graham Model," Economics Bulletin, AccessEcon, vol. 33(1), pages 379-387.
  2. James Markusen, 2005. "Modeling the Offshoring of White-Collar Services: From Comparative Advantage to the New Theories of Trade and FDI," NBER Working Papers 11827, National Bureau of Economic Research, Inc.
  3. Alan V. Deardorff, 2005. "How Robust is Comparative Advantage?," Working Papers 537, Research Seminar in International Economics, University of Michigan.
  4. Rodolfo Helg & Lucia Tajoli, 2004. "Patterns of International Fragmentation of Production and Implications for the Labor Markets," International Trade 0405002, EconWPA.
  5. Wixted, Brian, 2006. "Cluster Complexes: A Framework for Understanding the Internationalisation of Innovation Systems," MPRA Paper 846, University Library of Munich, Germany.
  6. Wilhelm Kohler, 2007. "The Bazaar Effect, Unbundling of Comparative Advantage, and Migration," CESifo Working Paper Series 1932, CESifo Group Munich.
  7. Oladi, Reza & Beladi, Hamid, 2010. "On technical progress and the boundary of non-traded goods," Mathematical Social Sciences, Elsevier, vol. 60(3), pages 204-209, November.
  8. Beladi, Hamid & Marjit, Sugata & Broll, Udo, 2011. "Capital mobility, skill formation and polarization," Economic Modelling, Elsevier, vol. 28(4), pages 1902-1906, July.

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