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What Goods Do Countries Trade? A Quantitative Exploration of Ricardo's Ideas

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  • Arnaud Costinot
  • Dave Donaldson
  • Ivana Komunjer

Abstract

The Ricardian model predicts that countries should produce and export relatively more in industries in which they are relatively more productive. Though one of the most celebrated insights in the theory of international trade, this prediction has received little attention in the empirical literature since the mid-1960s. The main reason behind this lack of popularity is the absence of clear theoretical foundations to guide the empirical analysis. Building on the seminal work of Eaton and Kortum ("Technology, Geography, and Trade", Econometrica, 70, 1741--1779 2002), we offer such foundations and use them to quantify the importance of Ricardian comparative advantage. In the process, we also provide a theoretically consistent alternative to Balassa's (1965, "An Empirical Demonstration of Classical Comparative Cost Theory", Review of Economics and Statistics, 45, 231--238) well-known index of "revealed comparative advantage". Copyright 2012, Oxford University Press.

Suggested Citation

  • Arnaud Costinot & Dave Donaldson & Ivana Komunjer, 2012. "What Goods Do Countries Trade? A Quantitative Exploration of Ricardo's Ideas," Review of Economic Studies, Oxford University Press, vol. 79(2), pages 581-608.
  • Handle: RePEc:oup:restud:v:79:y:2012:i:2:p:581-608
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    File URL: http://hdl.handle.net/10.1093/restud/rdr033
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    References listed on IDEAS

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    1. Robert M. Stern, 1962. "British And American Productivity And Comparative Costs In International Trade," Oxford Economic Papers, Oxford University Press, vol. 14(3), pages 275-296.
    2. Al-Najjar, Nabil I., 2004. "Aggregation and the law of large numbers in large economies," Games and Economic Behavior, Elsevier, vol. 47(1), pages 1-35, April.
    3. Deardorff, Alan V., 1984. "Testing trade theories and predicting trade flows," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 10, pages 467-517, Elsevier.
    4. Harrigan, James, 2010. "Airplanes and comparative advantage," Journal of International Economics, Elsevier, vol. 82(2), pages 181-194, November.
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    More about this item

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade

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