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Linking Absolute and Comparative Advantage to Intra-industry Trade Theory

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  • Weder, Rolf

Abstract

Two countries, which differ with respect to domestic demand for two groups of differentiated products, are considered in a setting of monopolistic competition where international trade is subject to transaction costs. It is shown that relative differences in demand determine the trade pattern. Each country is a net exporter of that group for which domestic demand is relatively larger--where the country has a comparative home-market advantage. Absolute differences in demand determine relative wages. Thus, the paper argues that the notions of absolute and comparative advantage as found in traditional trade theory also have meaning in new trade theory. Copyright 1995 by Blackwell Publishing Ltd.

Suggested Citation

  • Weder, Rolf, 1995. "Linking Absolute and Comparative Advantage to Intra-industry Trade Theory," Review of International Economics, Wiley Blackwell, vol. 3(3), pages 342-354, October.
  • Handle: RePEc:bla:reviec:v:3:y:1995:i:3:p:342-54
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    Cited by:

    1. Donald R. Davis & David E. Weinstein, 1996. "Does Economic Geography Matter for International Specialization?," Harvard Institute of Economic Research Working Papers 1773, Harvard - Institute of Economic Research.
    2. Crozet, Matthieu & Trionfetti, Federico, 2008. "Trade costs and the Home Market Effect," Journal of International Economics, Elsevier, vol. 76(2), pages 309-321, December.
    3. Davis, Donald R. & Weinstein, David E., 1999. "Economic geography and regional production structure: An empirical investigation," European Economic Review, Elsevier, vol. 43(2), pages 379-407, February.
    4. Trionfetti, Federico, 1999. "On the home market effect: theory and empirical evidence," LSE Research Online Documents on Economics 20215, London School of Economics and Political Science, LSE Library.
    5. Piermartini, Roberta, 2000. "Trade liberalisation and growth: market access advantage," Discussion Paper Series In Economics And Econometrics 7, Economics Division, School of Social Sciences, University of Southampton.
    6. Mario Larch, 2007. "The Home Market Effect in Models with Multinational Enterprises," Review of International Economics, Wiley Blackwell, vol. 15(1), pages 62-74, February.
    7. Donald R. Davis & David E. Weinstein, 1998. "Market Access, Economic Geography, and Comparative Advantage: An Empirical Assessment," NBER Working Papers 6787, National Bureau of Economic Research, Inc.
    8. Piermartini, Roberta, 2000. "Trade liberalisation and growth: market access advantage," Discussion Paper Series In Economics And Econometrics 0007, Economics Division, School of Social Sciences, University of Southampton.
    9. Rolf Weder, 2003. "Comparative home-market advantage: An empirical analysis of British and American exports," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 139(2), pages 220-247, June.
    10. Zhihao Yu, 2000. "Market Integration and Industrial Structure: Home Market Effects Revisited," Econometric Society World Congress 2000 Contributed Papers 0033, Econometric Society.
    11. Davis, Donald R. & Weinstein, David E., 2003. "Market access, economic geography and comparative advantage: an empirical test," Journal of International Economics, Elsevier, vol. 59(1), pages 1-23, January.
    12. Keith Head & John Ries, 2001. "Increasing Returns versus National Product Differentiation as an Explanation for the Pattern of U.S.-Canada Trade," American Economic Review, American Economic Association, vol. 91(4), pages 858-876, September.
    13. Nicolini, Rosella, 2000. "Local Agglomerations and Trade: an Empirical Investigation," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2000018, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    14. Federico Trionfetti, 2001. "Using home-biased demand to test trade theories," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 137(3), pages 404-426, September.

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