The Empirics of Comparative Advantage: Overcoming the Tyranny of Nonrefutability
I assess the empirical evidence on comparative advantage. I argue that the Heckscher-Ohlin-Vanek (HOV) relationship is not a refutable general-equilibrium proposition. Consequently, the empirical Heckscher-Ohlin literature has been suffering from the tyranny of nonrefutability . The trade-governing principle of comparative advantage, the Ricardo-Haberler-Deardorff (RHD) theorem, yields a refutable general-equilibrium prediction about the pattern of international trade and allows for a theory-based assessment of the magnitude of the gains from trade. The recent experimental evidence on Japan's nineteenth-century opening-up to world trade provides a strong case for the hypothesis that comparative advantage governed Japan's international trade in its early trading years. The aggregate gains from that trade are estimated to be no larger than 9% of Japan's GDP. Copyright 2005 International Monetary Fund.
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Volume (Year): 13 (2005)
Issue (Month): 5 (November)
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