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The Location of Comparative Advantages on the Basis of Fundamentals Only

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Author Info
Thijs Ten Raa, Pierre Mohnen

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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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Publisher Info
Article provided by Taylor and Francis Journals in its journal Economic Systems Research.

Volume (Year): 13 (2001)
Issue (Month): 1 (March)
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 listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Trefler, Daniel, 1993. "International Factor Price Differences: Leontief Was Right!," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 961-87, December. [Downloadable!] (restricted)
  2. Bowen, Harry P & Leamer, Edward E & Sveikauskas, Leo, 1987. "Multicountry, Multifactor Tests of the Factor Abundance Theory," American Economic Review, American Economic Association, vol. 77(5), pages 791-809, December. [Downloadable!] (restricted)
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  3. Leamer, E. & Levingsohn, J., 1994. "International Trade Theory: The Evidence," Working Papers 368, Research Seminar in International Economics, University of Michigan.
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  4. 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. [Downloadable!] (restricted)
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  5. ten Raa, Thijs & Chakraborty, Debesh, 1991. "Indian Comparative Advantage vis-a-vis Europe as Revealed by Linear Programming of the Two Economies," Economic Systems Research, Taylor and Francis Journals, vol. 3(2), pages 111-50.
  6. Harris, Richard, 1984. "Applied General Equilibrium Analysis of Small Open Economies with Scale Economies and Imperfect Competition," American Economic Review, American Economic Association, vol. 74(5), pages 1016-32, December. [Downloadable!] (restricted)
  7. Pierre Mohnen & Thijs Ten Raa, 1997. "The Location of Comparative Advantages on the Basis of Fundamentals Only," CIRANO Working Papers 97s-07, CIRANO. [Downloadable!]
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  8. Chipman, John S & Tian, Guoqiang, 1992. "A General-Equilibrium Intertemporal Model of an Open Economy," Economic Theory, Springer, vol. 2(2), pages 215-46, April.
  9. Deardorff, Alan V., 1984. "Testing trade theories and predicting trade flows," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 10, pages 467-517 Elsevier. [Downloadable!] (restricted)
  10. Leamer, Edward E, 1980. "The Leontief Paradox, Reconsidered," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 495-503, June. [Downloadable!] (restricted)
  11. 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. [Downloadable!] (restricted)
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  12. 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. [Downloadable!] (restricted)
  13. repec:fth:michin:368 is not listed on IDEAS
  14. 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. [Downloadable!] (restricted)
  15. 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. [Downloadable!] (restricted)
  16. Krueger, Anne O., 1984. "Trade policies in developing countries," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 11, pages 519-569 Elsevier. [Downloadable!] (restricted)
  17. 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. [Downloadable!] (restricted)
  18. Ethier, Wilfred J., 1984. "Higher dimensional issues in trade theory," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 3, pages 131-184 Elsevier. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Thijs Ten Raa, Pierre Mohnen, 2001. "The Location of Comparative Advantages on the Basis of Fundamentals Only," Economic Systems Research, Taylor and Francis Journals, vol. 13(1), pages 93-108, March. [Downloadable!] (restricted)
    Other versions:
  2. Victoria Shestalova, 2001. "General Equilibrium Analysis of International TFP Growth Rates," Economic Systems Research, Taylor and Francis Journals, vol. 13(4), pages 391-404, December. [Downloadable!] (restricted)
  3. Shu-hen Chiang, 2009. "Location quotient and trade," The Annals of Regional Science, Springer, vol. 43(2), pages 399-414, June. [Downloadable!] (restricted)
  4. Alex Hoen & Jan Oosterhaven, 2006. "On the measurement of comparative advantage," The Annals of Regional Science, Springer, vol. 40(3), pages 677-691, August. [Downloadable!] (restricted)
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