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What Goods Do Countries Trade? A Quantitative Exploration of Ricardo's Ideas

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  • Arnaud Costinot
  • Dave Donaldson
  • Ivana Komunjer

Abstract

The Ricardian model predicts that countries should produce and export relatively more in industries in which they are relatively more productive. Though one of the most celebrated insights in the theory of international trade, this prediction has received little attention in the empirical literature since the mid-1960s. The main reason behind this lack of popularity is the absence of clear theoretical foundations to guide the empirical analysis. Building on the seminal work of Eaton and Kortum ("Technology, Geography, and Trade", Econometrica, 70, 1741--1779 2002), we offer such foundations and use them to quantify the importance of Ricardian comparative advantage. In the process, we also provide a theoretically consistent alternative to Balassa's (1965, "An Empirical Demonstration of Classical Comparative Cost Theory", Review of Economics and Statistics, 45, 231--238) well-known index of "revealed comparative advantage". Copyright 2012, Oxford University Press.

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Article provided by Oxford University Press in its journal The Review of Economic Studies.

Volume (Year): 79 (2012)
Issue (Month): 2 ()
Pages: 581-608

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Handle: RePEc:oup:restud:v:79:y:2012:i:2:p:581-608

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  1. Harrigan, James, 2010. "Airplanes and comparative advantage," Journal of International Economics, Elsevier, vol. 82(2), pages 181-194, November.
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  1. Whither Ricardian comparative advantage?
    by jdingel in Trade Diversion on 2011-06-08 17:40:23
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