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Growth or decline of comparative advantage

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  • Deardorff, Alan V.

Abstract

The question here is whether the dynamic effects of opening to trade will increase or decrease comparative advantage. When comparative advantage is based on the abundance or scarcity of something that is costly to acquire, one expects rational behavior to respond to a change in prices by increasing that abundance or scarcity. To explore this issue in simple theoretical terms, this paper examines two types of simple growth model – a Solow Model with proportional saving, and a Ramsey model with optimal saving – to see whether this reasoning is born out. In the Ramsey model, it is. In the Solow model, on the other hand, results vary, but this should not be surprising, as the proportional saving assumption does not embody optimizing behavior. To the extent that we believe that aggregate saving behavior is indeed based on rational and fully informed optimization, we should therefore expect that the dynamic effects of trade do indeed operate in the direction of increasing comparative advantage over time.

Suggested Citation

  • Deardorff, Alan V., 2013. "Growth or decline of comparative advantage," Journal of Macroeconomics, Elsevier, vol. 38(PA), pages 12-18.
    • Handle: RePEc:eee:jmacro:v:38:y:2013:i:pa:p:12-18
    DOI: 10.1016/j.jmacro.2013.08.020
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    References listed on IDEAS

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    1. H. Uzawa, 1971. "On a Two-Sector Model of Economic Growth," Palgrave Macmillan Books, in: F. H. Hahn (ed.), Readings in the Theory of Growth, chapter 3, pages 19-26, Palgrave Macmillan.
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    5. Alan V. Deardorff, 2011. "A geometry of growth and trade," World Scientific Book Chapters, in: Robert M Stern (ed.), Comparative Advantage, Growth, And The Gains From Trade And Globalization A Festschrift in Honor of Alan V Deardorff, chapter 22, pages 237-249, World Scientific Publishing Co. Pte. Ltd..
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    Cited by:

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    3. Arpita Chatterjee, 2014. "Endogenous Comparative Advantage, Gains From Trade and Symmetry-Breaking," Discussion Papers 2014-18, School of Economics, The University of New South Wales.
    4. Shahriar, Saleh & Qian, Lu & Kea, Sokvibol, 2018. "China's economic integration with the Greater Mekong Sub-region: An empirical analysis by a panel dynamic gravity model," Economics Discussion Papers 2018-44, Kiel Institute for the World Economy (IfW Kiel).

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    More about this item

    Keywords

    Comparative advantage; Dynamic trade models; Trade and growth;
    All these keywords.

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade

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