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Proximity as a Source of Comparative Advantage

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  • Elizaveta Archanskaia

Abstract

This paper establishes that production unbundling has coincided with an inscreasing role of input costs in shaping the pattern of comparative advantage. I show that the wedge in the cost of the input bundle across countries in a multisectoral Ricardian model is given by a composite index of trade frictions incurred in sourcing inputs. As the cost share of inputs is sector-specific this wedge becomes source of comparative advantage whereby countries characterized by relatively high proximity to input suppliers specialize in sectors which use inputs more intensively. I find robust empirical evidence that the input cost channel has growing importance over 1995-2009. Nonetheless, consistently with the fundamental intuition of Ricardian models, the ranking of relative sectoral technology stocks still determines intersectoral specialization. Between 53-55% of intersectoral variation in relative sectoral exports is explained by technology while the input cost channel contributes 3 to 8% in the full sample, and 3 to 13% for the EU-15.

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Paper provided by Sciences Po Departement of Economics in its series Sciences Po Economics Discussion Papers with number 2013-05.

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Date of creation: Feb 2013
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Handle: RePEc:spo:wpecon:info:hdl:2441/dambferfb7dfprc9m054kce41

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Keywords: Ricardian model; Intersectoral specialization; Trade costs;

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