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Can Comparative Advantage Explain the Growth of US Trade?

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Alejandro Cunat
Marco Maffezzoli

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Abstract

We present a dynamic comparative advantage model in which moderate reductions in trade costs can generate sizable increases in trade volumes over time. A fall in trade costs 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 trade costs over time produces a non-linear increase in the trade share of output as in the data. Even when elasticities of substitution are not particularly high, moderate reductions in trade costs lead to large trade volumes over time.

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Paper provided by IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University in its series Working Papers with number 241.

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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. 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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  2. Alejandro Cuñat & Szabolcs Deak & Marco Maffezzoli, 2008. "Tax Cuts in Open Economies," CEP Discussion Papers dp0860, Centre for Economic Performance, LSE. [Downloadable!]
  3. Alejandro Cuñat & Szabolcs Deák & Marco Maffezzoli, . "Tax Cuts in Open Economies," Working Papers 332, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
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