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Specialization and the volume of trade: do the data obey the laws?

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James Harrigan

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Abstract

The core subjects of trade theory are the pattern and volume of trade: which goods are traded by which countries, and how much of those goods are traded. The first part of this paper discusses evidence on comparative advantage, with an emphasis on carefully connecting theoretical models with data analyses. The second part of the paper considers the theoretical foundations of the gravity model and reviews the small number of studies that have tried to test, rather than simply use, the implications of gravity. Both parts of the paper yield the same conclusion: we are still in the very early stages of empirically understanding specialization and the volume of trade, but the work that has been done can serve as a starting point for further research.

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Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 140.

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Date of creation: 2001
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Handle: RePEc:fip:fednsr:140

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Keywords: International trade;

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This paper has been announced in the following NEP Reports: References listed on IDEAS
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  3. James A. Brander & Paul Krugman, 1983. "A 'Reciprocal Dumping' Model of International Trade," NBER Working Papers 1194, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. 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)
  5. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-59, December. [Downloadable!] (restricted)
  6. Rauch, James E., 1999. "Networks versus markets in international trade," Journal of International Economics, Elsevier, vol. 48(1), pages 7-35, June. [Downloadable!] (restricted)
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  7. Simon J. Evenett & Wolfgang Keller, 1998. "On Theories Explaining the Success of the Gravity Equation," NBER Working Papers 6529, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Jeffrey A. Frankel, 1998. "The Regionalization of the World Economy," NBER Books, National Bureau of Economic Research, Inc, number fran98-1, September.
  9. Golub, Stephen S & Hsieh, Chang-Tai, 2000. "Classical Ricardian Theory of Comparative Advantage Revisited," Review of International Economics, Blackwell Publishing, vol. 8(2), pages 221-34, May. [Downloadable!] (restricted)
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  11. Shang-Jin Wei, 1996. "Intra-National versus International Trade: How Stubborn are Nations in Global Integration?," NBER Working Papers 5531, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  12. Jeffrey R. Bernstein & David E. Weinstein, 1998. "Do Endowments Predict the Location of Production? Evidence from National and International Data," NBER Working Papers 6815, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  13. Roberts, Mark J & Tybout, James R, 1997. "The Decision to Export in Colombia: An Empirical Model of Entry with Sunk Costs," American Economic Review, American Economic Association, vol. 87(4), pages 545-64, September. [Downloadable!] (restricted)
  14. Bergstrand, Jeffrey H, 1989. "The Generalized Gravity Equation, Monopolistic Competition, and the Factor-Proportions Theory in International Trade," The Review of Economics and Statistics, MIT Press, vol. 71(1), pages 143-53, February. [Downloadable!] (restricted)
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  17. James Harrigan, 1997. "Cross-country comparisons of industry total factor productivity: theory and evidence," Research Paper 9734, Federal Reserve Bank of New York. [Downloadable!]
  18. Noussair, Charles N & Plott, Charles R & Riezman, Raymond G, 1995. "An Experimental Investigation of the Patterns of International Trade," American Economic Review, American Economic Association, vol. 85(3), pages 462-91, June. [Downloadable!] (restricted)
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  19. Harrigan, James, 1999. "Estimation of cross-country differences in industry production functions," Journal of International Economics, Elsevier, vol. 47(2), pages 267-293, April. [Downloadable!] (restricted)
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  20. Robert C. Feenstra & James R. Markusen & Andrew K. Rose, 2001. "Using the gravity equation to differentiate among alternative theories of trade," Canadian Journal of Economics, Canadian Economics Association, vol. 34(2), pages 430-447, May. [Downloadable!] (restricted)
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  22. Hunter, Linda, 1991. "The contribution of nonhomothetic preferences to trade," Journal of International Economics, Elsevier, vol. 30(3-4), pages 345-358, May. [Downloadable!] (restricted)
  23. 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)
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  25. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September. [Downloadable!] (restricted)
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  29. James Harrigan & Egon Zakrajsek, 2000. "Factor supplies and specialization in the world economy," Finance and Economics Discussion Series 2000-43, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  30. Deardorff, A.V., 1995. "Determinants of Bilateral Trade : Does Gravity Work in a Neoclassical World?," Papers 95-05, Michigan - Center for Research on Economic & Social Theory.
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  31. repec:att:wimass:199713 is not listed on IDEAS
  32. Donald R. Davis & David E. Weinstein, 1998. "An Account of Global Factor Trade," Harvard Institute of Economic Research Working Papers 1849, Harvard - Institute of Economic Research.
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  33. Deardorff, Alan V., 1979. "Weak links in the chain of comparative advantage," Journal of International Economics, Elsevier, vol. 9(2), pages 197-209, May. [Downloadable!] (restricted)
  34. Masahisa Fujita & Paul Krugman & Anthony J. Venables, 2001. "The Spatial Economy: Cities, Regions, and International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262561476.
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  36. Keith Head & John Ries, 2001. "Increasing Returns versus National Product Differentiation as an Explanation for the Pattern of U.S.-Canada Trade," American Economic Review, American Economic Association, vol. 91(4), pages 858-876, September. [Downloadable!] (restricted)
  37. Harrigan, James, 1994. "Scale Economies and the Volume of Trade," The Review of Economics and Statistics, MIT Press, vol. 76(2), pages 321-28, May. [Downloadable!] (restricted)
  38. Harrigan, James, 1997. "Technology, Factor Supplies, and International Specialization: Estimating the Neoclassical Model," American Economic Review, American Economic Association, vol. 87(4), pages 475-94, September. [Downloadable!] (restricted)
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  39. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, vol. 69(1), pages 106-16, March. [Downloadable!] (restricted)
  40. Feenstra, Robert & Markusen, James R. & Rose, Andrew K, 1998. "Understanding the Home Market Effect and the Gravity Equation: The Role of Differentiating Goods," CEPR Discussion Papers 2035, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  41. Harrigan, James, 1996. "Openness to trade in manufactures in the OECD," Journal of International Economics, Elsevier, vol. 40(1-2), pages 23-39, February. [Downloadable!] (restricted)
Full references

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. Alejandro Diaz-Bautista, 2005. "Agglomeration Economies, Economic Growth and the New Economic Geography in Mexico," Urban/Regional 0508001, EconWPA. [Downloadable!]
  2. Roberto Álvarez & Rodrigo Fuentes, 2004. "Patterns of Specialization and Economic Growth in Chile by Sector," Working Papers Central Bank of Chile 288, Central Bank of Chile. [Downloadable!]
  3. Joeri Gorter & Albert Van der Horst, 2005. "New Economic Geography, Empirics, and Regional Policy," ERSA conference papers ersa05p236, European Regional Science Association. [Downloadable!]
    Other versions:
  4. Jean Imbs, 2003. "Trade, Finance, Specialization, and Synchronization," IMF Working Papers 03/81, International Monetary Fund. [Downloadable!]
    Other versions:
  5. James Harrigan & Rohit Vanjani, 2003. "Is Japan's Trade (still) Different?," NBER Working Papers 10058, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  6. Doireann Fitzgerald & Juan Carlos Hallak, 2004. "Specialization, Factor Accumulation and Development," NBER Working Papers 10638, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  7. Toshihiro Okubo, 2006. "Trade Bloc Formation in Interwar Japan --Gravity Model Analysis-- (forthcoming in Journal of the Japanese and International Economies)," HEI Working Papers 03-2006, Economics Section, The Graduate Institute of International Studies. [Downloadable!]
  8. Brakman, Steven & Garretsen, Harry & Schramm, Marc, 2002. "The Final Frontier? Border Effects and German Regional Wages," Discussion Paper Series 26233, Hamburg Institute of International Economics. [Downloadable!]
  9. Paas, Tiiu, 2002. "Gravity Approach for Exploring Baltic Sea Regional Integration in the Field of International Trade," Discussion Paper Series 26379, Hamburg Institute of International Economics. [Downloadable!]
  10. Kumagai, Satoru, 2007. "Comparing the Networks of Ethnic Japanese and Ethnic Chinese in International Trade," IDE Discussion Papers 113, Institute of Developing Economies, Japan External Trade Organization(JETRO). [Downloadable!]
  11. Trevor A. Reeve, 2002. "Factor endowments and industrial structure," International Finance Discussion Papers 731, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  12. Richard Baldwin Virginia Di Nino, 2006. "Euros and zeros: The common currency effect on trade in new goods," HEI Working Papers heiwp21-2006, Economics Section, The Graduate Institute of International Studies, revised 31 Oct 2006. [Downloadable!]
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  13. Claudia M. Buch, 2002. "Business Cycle Volatility and Globalization: A Survey," Kiel Working Papers 1107, Kiel Institute for the World Economy. [Downloadable!]
  14. Cuñat, Alejandro & Maffezzoli, Marco, 2002. "Neoclassical Growth and Commodity Trade," CEPR Discussion Papers 3322, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  15. de Blasi, Guiseppe & Seccia, Antonio & Carlucci, Domenico & Santeramo, Fabio, 2007. "Analysis of Italian High Quality Wine Exports using the Gravity Model Approach," 105th Seminar, March 8-10, 2007, Bologna, Italy 7901, European Association of Agricultural Economists. [Downloadable!]
  16. Ciccone, Antonio & Papaioannou, Elias, 2005. "Human Capital, the Structure of Production, and Growth," CEPR Discussion Papers 5354, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  17. Harry Garretsen & Marc Schramm & Steven Brakman, 2003. "The Spatial Distribution of Wages: Estimating the Helpman-Hanson model for Germany," Working Papers 03-08, Utrecht School of Economics. [Downloadable!]
  18. Prabir De, 2009. "Global economic and financial crisis: India’s trade potential and future prospects," Working Papers 6409, Asia-Pacific Research and Training Network on Trade (ARTNeT), an initiative of UNESCAP and IDRC, Canada.. [Downloadable!]
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