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On the Origins of Comparative Advantage

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Author Info
Arnaud Costinot (University of California - San Diego)

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Abstract

This paper proposes a simple theory of international trade with endogenous technological differences across countries. The core of our analysis lies in the determinants of the division of labor. We consider a world economy comprising two large countries, with a continuum of goods and one factor of production, labor. Each good is characterized by its complexity, defined as the number of tasks that must be performed to produce one unit. There are increasing returns to scale in the performance of each task, which creates gains from specialization, and uncertainty in the inforcement of each contract, which create transaction costs. The trade-off between these two forces pins down the size of productive teams across sectors in each country. Under free trade, the country where teams are larger specializes in the more complex goods. In our model, it is the country where the product of institutional quality and human per worker capital is larger. Hence, better institutions and more educated works are complementary sources of comparative advantage in the more complex industries.

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Paper provided by Department of Economics, UC San Diego in its series University of California at San Diego, Economics Working Paper Series with number 2008-06.

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Date of creation: 01 Sep 2007
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Handle: RePEc:cdl:ucsdec:2008-06

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Related research
Keywords: complexity; institutional quality; human capital; division of labor; comparative advantage;

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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. Kremer, Michael, 1993. "The O-Ring Theory of Economic Development," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 551-75, August. [Downloadable!] (restricted)
  2. Gene M. Grossman, 2004. "The Distribution of Talent and the Pattern and Consequences of International Trade," Journal of Political Economy, University of Chicago Press, vol. 112(1), pages 209-239, February. [Downloadable!] (restricted)
  3. Andrei A. Levchenko, 2004. "Institutional Quality and International Trade," IMF Working Papers 04/231, International Monetary Fund. [Downloadable!]
    Other versions:
  4. 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.
    Other versions:
  5. Vogel, Jonathan, 2007. "Institutions and moral hazard in open economies," Journal of International Economics, Elsevier, vol. 71(2), pages 495-514, April. [Downloadable!] (restricted)
  6. Gary S. Murphy Becker & Kevin M., 1992. "The Division of Labor, Coordination Costs, and Knowledge," University of Chicago - George G. Stigler Center for Study of Economy and State 79, Chicago - Center for Study of Economy and State.
    Other versions:
  7. Gordon H. Hanson & Chong Xiang, 2004. "The Home-Market Effect and Bilateral Trade Patterns," American Economic Review, American Economic Association, vol. 94(4), pages 1108-1129, September. [Downloadable!]
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  8. Rosen, Sherwin, 1983. "Specialization and Human Capital," Journal of Labor Economics, University of Chicago Press, vol. 1(1), pages 43-49, January. [Downloadable!] (restricted)
  9. Nathan Nunn, 2005. "Relationship Specificity, Incomplete Contracts and the Pattern of Trade," International Trade 0512018, EconWPA. [Downloadable!]
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  10. Pol Antràs & Luis Garicano & Esteban Rossi-Hansberg, 2006. "Offshoring in a Knowledge Economy," The Quarterly Journal of Economics, MIT Press, vol. 121(1), pages 31-77, 02. [Downloadable!] (restricted)
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  11. Daron Acemoglu & Pol Antràs & Elhanan Helpman, 2005. "Contracts and the Division of Labor," NBER Working Papers 11356, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  12. Arnaud Costinot & Ivana Komunjer, 2006. "What Goods Do Countries Trade? New Ricardian Predictions," University of California at San Diego, Economics Working Paper Series 2006-09, Department of Economics, UC San Diego. [Downloadable!]
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  13. B. Douglas Bernheim & Michael D. Whinston, 1990. "Multimarket Contact and Collusive Behavior," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 1-26, Spring. [Downloadable!] (restricted)
  14. Franziska Ohnsorge & Daniel Trefler, 2004. "Sorting It Out: International Trade and Protection With Heterogeneous Workers," NBER Working Papers 10959, National Bureau of Economic Research, Inc. [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. Juan Carluccio & Thibault Fally, 2008. "Global sourcing under imperfect capital markets," PSE Working Papers 2008-69, PSE (Ecole normale supérieure). [Downloadable!]
  2. Davin Chor, 2006. "Unpacking Sources of Comparative Advantage: A Quantitative Approach," Working Papers 13-2008, Singapore Management University, School of Economics, revised Oct 2008. [Downloadable!]
  3. Ottaviano, Gianmarco Ireo Paolo, 2007. "Contract Enforcement, Comparative Advantage and Long-Run Growth," CEPR Discussion Papers 6419, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  4. Kiminori Matsuyama, 2007. "Aggregate Implications of Credit Market Imperfections," NBER Working Papers 13209, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Marianna Belloc & Samuel Bowles, 2009. "International Trade, Factor Mobility and the Persistence of Cultural-Institutional Diversity," Working Papers 2009-08, University of Massachusetts Amherst, Department of Economics. [Downloadable!]
  6. Pravin Krishna & Andrei A. Levchenko, 2009. "Comparative Advantage, Complexity and Volatility," NBER Working Papers 14965, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Jože P. Damijan & Jose de Sousa & Olivier Lamotte, 2008. "Does international openness affect productivity of local firms? Evidence from Southeastern Europe," LICOS Discussion Papers 21908, LICOS - Centre for Institutions and Economic Performance, K.U.Leuven. [Downloadable!]
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