IDEAS home Printed from https://ideas.repec.org/a/aea/jecper/v26y2012i2p65-90.html
   My bibliography  Save this article

Putting Ricardo to Work

Author

Listed:
  • Jonathan Eaton
  • Samuel Kortum

Abstract

David Ricardo (1817) provided a mathematical example showing that countries could gain from trade by exploiting innate differences in their ability to make different goods. In the basic Ricardian example, two countries do better by specializing in different goods and exchanging them for each other, even when one country is better at making both. This example typically gets presented in the first or second chapter of a text on international trade, and sometimes appears even in a principles text. But having served its pedagogical purpose, the model is rarely heard from again. The Ricardian model became something like a family heirloom, brought down from the attic to show a new generation of students, and then put back. Nearly two centuries later, however, the Ricardian framework has experienced a revival. Much work in international trade during the last decade has returned to the assumption that countries gain from trade because they have access to different technologies. These technologies may be generally available to producers in a country, as in the Ricardian model of trade, our topic here, or exclusive to individual firms. This line of thought has brought Ricardo's theory of comparative advantage back to center stage. Our goal is to make this new old trade theory accessible and to put it to work on some current issues in the international economy.

Suggested Citation

  • Jonathan Eaton & Samuel Kortum, 2012. "Putting Ricardo to Work," Journal of Economic Perspectives, American Economic Association, vol. 26(2), pages 65-90, Spring.
  • Handle: RePEc:aea:jecper:v:26:y:2012:i:2:p:65-90 Note: DOI: 10.1257/jep.26.2.65
    as

    Download full text from publisher

    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.26.2.65
    Download Restriction: no

    File URL: http://www.aeaweb.org/jep/app/2602_Eaton_Kortum_app.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Simonovska, Ina; Waugh, Michael E., 2010. "The Elasticity of Trade: Estimates & Evidence," CAGE Online Working Paper Series 13, Competitive Advantage in the Global Economy (CAGE).
    2. Mill, John Stuart, 1874. "Essays on Some Unsettled Questions of Political Economy," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, edition 2, number mill1874.
    3. E. Roy Weintraub, 2011. "Retrospectives: Lionel W. McKenzie and the Proof of the Existence of a Competitive Equilibrium," Journal of Economic Perspectives, American Economic Association, vol. 25(2), pages 199-215, Spring.
    4. Trevor Tombe, 2012. "The Missing Food Problem," Working Papers tt0060, Wilfrid Laurier University, Department of Economics, revised 2012.
    5. Chor, Davin, 2010. "Unpacking sources of comparative advantage: A quantitative approach," Journal of International Economics, Elsevier, pages 152-167.
    6. Hsieh, Chang-Tai & Ossa, Ralph, 2016. "A global view of productivity growth in China," Journal of International Economics, Elsevier, pages 209-224.
    7. Simonovska, Ina & Waugh, Michael E., 2014. "The elasticity of trade: Estimates and evidence," Journal of International Economics, Elsevier, pages 34-50.
    8. Fernando Parro, 2013. "Capital-Skill Complementarity and the Skill Premium in a Quantitative Model of Trade," American Economic Journal: Macroeconomics, American Economic Association, vol. 5(2), pages 72-117, April.
    9. Simonovska, Ina & Waugh, Michael E., 2014. "The elasticity of trade: Estimates and evidence," Journal of International Economics, Elsevier, pages 34-50.
    10. Holmes, Thomas J. & Hsu, Wen-Tai & Lee, Sanghoon, 2014. "Allocative efficiency, mark-ups, and the welfare gains from trade," Journal of International Economics, Elsevier, pages 195-206.
    11. Robert Dekle & Jonathan Eaton & Samuel Kortum, 2008. "Global Rebalancing with Gravity: Measuring the Burden of Adjustment," IMF Staff Papers, Palgrave Macmillan, vol. 55(3), pages 511-540, July.
    12. Beatriz de Blas & Katheryn Russ, 2010. "Understanding Markups in the Open Economy under Bertrand Competition," NBER Working Papers 16587, National Bureau of Economic Research, Inc.
    13. Eaton, Jonathan & Kortum, Samuel, 2001. "Technology, trade, and growth: A unified framework," European Economic Review, Elsevier, vol. 45(4-6), pages 742-755, May.
    14. Chor, Davin, 2010. "Unpacking sources of comparative advantage: A quantitative approach," Journal of International Economics, Elsevier, pages 152-167.
    15. Ana Cecília Fieler, 2011. "Nonhomotheticity and Bilateral Trade: Evidence and a Quantitative Explanation," Econometrica, Econometric Society, vol. 79(4), pages 1069-1101, July.
    16. Jonathan Eaton & Robert Dekle & Samuel Kortum, 2007. "Unbalanced Trade," American Economic Review, American Economic Association, pages 351-355.
    17. Costas Arkolakis & Arnaud Costinot & Andres Rodriguez-Clare, 2012. "New Trade Models, Same Old Gains?," American Economic Review, American Economic Association, pages 94-130.
    18. Dornbusch, Rudiger & Fischer, Stanley & Samuelson, Paul A, 1977. "Comparative Advantage, Trade, and Payments in a Ricardian Model with a Continuum of Goods," American Economic Review, American Economic Association, pages 823-839.
    19. repec:fth:bosecd:110 is not listed on IDEAS
    20. R. Dornbusch & S. Fischer & P. A. Samuelson, 1976. "Comparative Advantage, Trade and Payments in a Ricardian Model With a Continuum of Goods," Working papers 178, Massachusetts Institute of Technology (MIT), Department of Economics.
    21. Lorenzo Caliendo & Fernando Parro, 2015. "Estimates of the Trade and Welfare Effects of NAFTA," Review of Economic Studies, Oxford University Press, vol. 82(1), pages 1-44.
    22. Ariel Burstein & Jonathan Vogel, 2010. "Globalization, Technology, and the Skill Premium: A Quantitative Analysis," NBER Working Papers 16459, National Bureau of Economic Research, Inc.
    23. Jonathan Eaton & Robert Dekle & Samuel Kortum, 2007. "Unbalanced Trade," American Economic Review, American Economic Association, pages 351-355.
    24. Dave Donaldson, 2010. "Railroads of the Raj: Estimating the Impact of Transportation Infrastructure," NBER Working Papers 16487, National Bureau of Economic Research, Inc.
    25. Costas Arkolakis & Arnaud Costinot & Andres Rodriguez-Clare, 2012. "New Trade Models, Same Old Gains?," American Economic Review, American Economic Association, pages 94-130.
    26. Lionel W. McKenzie, 1953. "Specialisation and Efficiency in World Production," Review of Economic Studies, Oxford University Press, vol. 21(3), pages 165-180.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Caliendo, Lorenzo & Parro, Fernando & Rossi-Hansberg, Esteban & Sarte, Pierre-Daniel G., 2014. "The Impact of Regional and Sectoral Productivity Changes on the U.S. Economy," International Finance Discussion Papers 1119, Board of Governors of the Federal Reserve System (U.S.).
    2. Keith Head & Thierry Mayer, 2013. "What separates us? Sources of resistance to globalization," Canadian Journal of Economics, Canadian Economics Association, vol. 46(4), pages 1196-1231, November.
    3. Lorenzo CALIENDO & Maximiliano DVORKIN & Fernando PARRO, 2016. "Trade and Labor Market Dynamics," Discussion papers 16050, Research Institute of Economy, Trade and Industry (RIETI).
    4. Pierre-Daniel G. Sarte & Esteban Rossi-Hansberg & Fernando Parro & Lorenzo Caliendo, 2013. "The impact of regional and sectoral productivity changes on the U.S. economy," Working Paper 13-14, Federal Reserve Bank of Richmond.
    5. Lendle, Andreas & Olarreaga, Marcelo & Schropp, Simon & Vézina, Pierre-Louis, 2012. "There goes gravity: how eBay reduces trade costs," CEPR Discussion Papers 9094, C.E.P.R. Discussion Papers.
    6. repec:cje:issued:v:50:y:2017:i:2:p:456-480 is not listed on IDEAS
    7. Pierpaolo Andriani & Carsten Herrmann-Pillath, 2015. "Transactional innovation as performative action: transforming comparative advantage in the global coffee business," Journal of Evolutionary Economics, Springer, pages 371-400.
    8. Mauro Lanati, 2013. "Estimating the elasticity of trade: the trade share approach," Discussion Papers 2013/159, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    9. Henry Thompson, 2013. "Regional Trade in a Purely Competitive Model," Auburn Economics Working Paper Series auwp2013-15, Department of Economics, Auburn University.
    10. Kwok Tong Soo, 2013. "Intra-industry trade," Working Papers 33867578, Lancaster University Management School, Economics Department.
    11. Fukao, Kyoji & Yuan, Tangjun, 2012. "China'S Economic Growth, Structural Change And The Lewisian Turning Point," Hitotsubashi Journal of Economics, Hitotsubashi University, pages 147-176.
    12. David von Below & Pierre-Louis Vézina, 2016. "The Trade Consequences of Pricey Oil," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 64(2), pages 303-318, June.
    13. Pothen, Frank & Hübler, Michael, 2017. "A Regional Trade Model with Ricardian Productivity Gains and Multi-technology Electricity Supply," Hannover Economic Papers (HEP) dp-585, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    14. Juyoung Cheong & Shino Takayama, 2014. "The Trade And Welfare Analysis Of The TPP," Discussion Papers Series 509, School of Economics, University of Queensland, Australia.
    15. Kakarot-Handtke, Egmont, 2011. "Trade, productivity, income, and profit: the comparative advantage of structural axiomatic analysis," MPRA Paper 43872, University Library of Munich, Germany, revised 18 Jan 2012.
    16. David J. Deming, 2015. "The Growing Importance of Social Skills in the Labor Market," NBER Working Papers 21473, National Bureau of Economic Research, Inc.
    17. Caliendo, Lorenzo & Dvorkin, Maximiliano & Parro, Fernando, 2015. "Trade and Labor Market Dynamics: General Equilibrium Analysis of the China Trade Shock," Working Papers 2015-9, Federal Reserve Bank of St. Louis, revised 25 Jul 2017.
    18. Ohdoi, Ryoji, 2017. "International Transmission of Financial Shocks without Financial Integration," MPRA Paper 83286, University Library of Munich, Germany.
    19. repec:bpj:pewipo:v:18:y:2017:i:1:p:32-55:n:2 is not listed on IDEAS
    20. Mauro Lanati, 2013. "Estimating the elasticity of trade: the trade share approach," LEM Papers Series 2013/10, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    21. David von Below & Pierre-Louis Vézina, 2016. "The Trade Consequences of Pricey Oil," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 64(2), pages 303-318, June.

    More about this item

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:jecper:v:26:y:2012:i:2:p:65-90. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jane Voros) or (Michael P. Albert). General contact details of provider: http://edirc.repec.org/data/aeaaaea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.