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East is East and West is West: A Ricardian-Heckscher-Ohlin Model of Comparative Advantage

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  • Peter M. Morrow

    (University of Toronto)

Abstract

Models of comparative advantage are usually based either on differences in factor abundance or differences in total factor productivity within a country despite considerable empirical evidence that both matter. This paper articulates a unified and tractable model in which comparative advantage exists due to differences in factor abundance and relative productivity differences across a continuum of industries with monopolistic competition and increasing returns to scale. I provide evidence that both sources of comparative advantage shape international production patterns. In addition, I find that relative productivity differences across industries are uncorrelated with the factor intensities of these industries. Therefore, each of the two forces for comparative advantage offers valid partial descriptions of the data. Consequently, simply aggregating the predictions of the factor abundance-based and relative productivity-based models can be used to obtain a full description of industry-by-industry production patterns.

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File URL: http://www.fordschool.umich.edu/rsie/workingpapers/Papers551-575/r575.pdf
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Bibliographic Info

Paper provided by Research Seminar in International Economics, University of Michigan in its series Working Papers with number 575.

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Length: 53 pages
Date of creation: Jan 2008
Date of revision:
Handle: RePEc:mie:wpaper:575

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Postal: ANN ARBOR MICHIGAN 48109
Web page: http://www.fordschool.umich.edu/rsie/
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Citations

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Cited by:
  1. Davin Chor, 2008. "Unpacking Sources of Comparative Advantage : A Quantitative Approach," Macroeconomics Working Papers 22071, East Asian Bureau of Economic Research.
  2. Arnaud Costinot, 2009. "An Elementary Theory of Comparative Advantage," Econometrica, Econometric Society, vol. 77(4), pages 1165-1192, 07.
  3. Arnaud Costinot & Ivana Komunjer, 2007. "What Goods Do Countries Trade? New Ricardian Predictions," NBER Working Papers 13691, National Bureau of Economic Research, Inc.
  4. Daniel M. Bernhofen, . "The Empirics of General Equilibrium Trade Theory: What Have We Learned?," Discussion Papers 10/24, University of Nottingham, GEP.
  5. Kukenova, Madina, 2011. "Financial liberalization and allocative dfficiency of capital," Policy Research Working Paper Series 5670, The World Bank.
  6. Ariel Burstein & Jonathan Vogel, 2010. "Globalization, Technology, and the Skill Premium: A Quantitative Analysis," NBER Working Papers 16459, National Bureau of Economic Research, Inc.

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