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Can Comparative Advantage Explain the Growth of US Trade?

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Author Info
Cuñat, Alejandro
Maffezzoli, Marco

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Abstract

We present a dynamic comparative advantage model in which moderate reductions in import tariffs can generate sizable increases in trade volumes over time. A fall in import tariffs has two effects on the volume of trade. First, for given factor endowments, it raises the degree of specialization of countries, leading to a larger volume of trade in the short run. Second, it raises the factor price of each country's abundant production factor, leading to diverging paths of relative factor endowments across countries and a rising degree of specialization. A simulation exercise shows that a fall in import tariffs over time produces a disproportional increase in the trade share of output as in the data. Even when elasticities of substitution are not particularly high, moderate reductions in trade barriers lead to large trade volumes over time.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5348.

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Date of creation: Nov 2005
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Handle: RePEc:cpr:ceprdp:5348

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Related research
Keywords: Heckscher-Ohlin; international trade;

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Find related papers by JEL classification:
F1 - International Economics - - Trade
F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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Cited by:
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  1. Felicitas Nowak-Lehmann D. & Sebastian Vollmer & Inmaculada Martinez-Zarzoso, 2008. "Does Comparative Advantage Make Countries Competitive? A Comparison of China and Mexico," cege – Center for European, Governance and Economic Development Research Discussion Papers 74, cege – Center for European, Governance and Economic Development Research, University of Goettingen (Germany).. [Downloadable!]
  2. Alejandro Cuñat & Szabolcs Deák & Marco Maffezzoli, 2008. "Tax Cuts in Open Economies," Working Papers 332, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
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  3. Alejandro Cuñat & Marco Maffezzoli, 2007. "Specialization Patterns and the Factor Bias of Technology," Contributions to Macroeconomics, Berkeley Electronic Press, vol. 7(1), pages 1574-1574. [Downloadable!] (restricted)
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