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The Location of Comparative Advantages on the Basis of Fundamentals Only

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  • Thijs Ten Raa
  • Pierre Mohnen

Abstract

We propose a new way to locate the comparative advantages of two economies linked by international trade. We construct a competitive benchmark based only on the fundamentals of the two economies: endowments, preferences and technologies. The direction of trade is endogenously determined by a linear program with an input-output core. The factor contents of that trade are compared with factor endowments to test the Heckscher-Ohlin model in the presence of different technologies and preferences. We can also evaluate the gains of free bilateral trade. The model is applied to a customs union between Europe and Canada. The Heckscher-Ohlin factor abundance specialization hypothesis is supported by the data.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Economic Systems Research.

Volume (Year): 13 (2001)
Issue (Month): 1 ()
Pages: 93-108

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Handle: RePEc:taf:ecsysr:v:13:y:2001:i:1:p:93-108

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Keywords: Comparative Advantage; Gains Free Trade;

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References

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  1. Harry P. Bowen & Edward E. Leamer & Leo Sveikauskas, 1986. "Multicountry, Multifactor Tests of the Factor Abundance Theory," NBER Working Papers 1918, National Bureau of Economic Research, Inc.
  2. Richard Harris, 1983. "Applied General Equilibrium Analysis of Small Open Economies with Scale Economies and Imperfect Competition," Working Papers, Queen's University, Department of Economics 524, Queen's University, Department of Economics.
  3. Romer, Paul, 1994. "New goods, old theory, and the welfare costs of trade restrictions," Journal of Development Economics, Elsevier, vol. 43(1), pages 5-38, February.
  4. Thijs Ten Raa & Pierre Mohnen, 2001. "The Location of Comparative Advantages on the Basis of Fundamentals Only," Economic Systems Research, Taylor & Francis Journals, Taylor & Francis Journals, vol. 13(1), pages 93-108.
  5. W.E. Diewert & Catherine J. Morrison, 1985. "Adjusting Output and Productivity Indexes for Changes in the Terms of Trade," NBER Working Papers 1564, National Bureau of Economic Research, Inc.
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  7. Krueger, Anne O., 1984. "Trade policies in developing countries," Handbook of International Economics, Elsevier, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 11, pages 519-569 Elsevier.
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  9. Victor Ginsburgh & Jean Waelbroeck, 1981. "Activity analysis and general equilibrium modelling," ULB Institutional Repository 2013/1649, ULB -- Universite Libre de Bruxelles.
  10. Jansen, Pieter Kop & ten Raa, Thijs, 1990. "The Choice of Model in the Construction of Input-Output Coefficients Matrices," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(1), pages 213-27, February.
  11. Leamer, Edward E, 1980. "The Leontief Paradox, Reconsidered," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 88(3), pages 495-503, June.
  12. Raa, M.H. ten & Kop Jansen, P., 1990. "The choice of model in the construction of input-output coefficients matrices," Open Access publications from Tilburg University urn:nbn:nl:ui:12-381948, Tilburg University.
  13. Batra, Raveendra N & Casas, Francisco R, 1973. "Intermediate Products and the Pure Theory of International Trade: A Neo-Heckscher-Ohlin Framework," American Economic Review, American Economic Association, vol. 63(3), pages 297-311, June.
  14. Trefler, Daniel, 1993. "International Factor Price Differences: Leontief Was Right!," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 101(6), pages 961-87, December.
  15. Chipman, John S & Tian, Guoqiang, 1992. "A General-Equilibrium Intertemporal Model of an Open Economy," Economic Theory, Springer, Springer, vol. 2(2), pages 215-46, April.
  16. Ethier, Wilfred J., 1984. "Higher dimensional issues in trade theory," Handbook of International Economics, Elsevier, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 3, pages 131-184 Elsevier.
  17. Davis, Donald R. & David E. Weinstein & Scott C. Bradford & Kazushige Shimpo, 1997. "Using International and Japanese Regional Data to Determine When the Factor Abundance Theory of Trade Works," American Economic Review, American Economic Association, vol. 87(3), pages 421-46, June.
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  19. Trefler, Daniel, 1995. "The Case of the Missing Trade and Other Mysteries," American Economic Review, American Economic Association, vol. 85(5), pages 1029-46, December.
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Citations

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Cited by:
  1. Raa, T. ten & Mohnen, P., 1996. "The location of comparative advantages on the basis of fundamentals only," Discussion Paper, Tilburg University, Center for Economic Research 1996-81, Tilburg University, Center for Economic Research.
  2. Sahoo, A., 2008. "Essays on the Indian Economy: Competitive Pressure, Productivity and Performance," Open Access publications from Tilburg University urn:nbn:nl:ui:12-373280, Tilburg University.
  3. Thijs Raa & Victoria Shestalova, 2011. "The Solow residual, Domar aggregation, and inefficiency: a synthesis of TFP measures," Journal of Productivity Analysis, Springer, Springer, vol. 36(1), pages 71-77, August.
  4. ten Raa, Thijs & Pan, Haoran, 2005. "Competitive pressures on China: Income inequality and migration," Regional Science and Urban Economics, Elsevier, vol. 35(6), pages 671-699, November.
  5. Hoen, Alex R., 2001. "On the measurement of comparative advantage," Research Report 04C11, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
  6. Prieto, Angel M. & Zofio, Jose L., 2007. "Network DEA efficiency in input-output models: With an application to OECD countries," European Journal of Operational Research, Elsevier, Elsevier, vol. 178(1), pages 292-304, April.
  7. Kagawa, Shigemi, 2008. "How does Japanese compliance with the Kyoto Protocol affect environmental productivity in China and Japan?," Structural Change and Economic Dynamics, Elsevier, Elsevier, vol. 19(2), pages 173-188, June.
  8. Marian Leimbach & Baumstark, Lavinia, 2011. "Intertemporal trade and the Integrated Assessment of climate change mitigation policies," EcoMod2011 3036, EcoMod.
  9. Victoria Shestalova, 2001. "General Equilibrium Analysis of International TFP Growth Rates," Economic Systems Research, Taylor & Francis Journals, Taylor & Francis Journals, vol. 13(4), pages 391-404.
  10. Shu-hen Chiang, 2009. "Location quotient and trade," The Annals of Regional Science, Springer, Springer, vol. 43(2), pages 399-414, June.

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