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Comparative Advantage, Exchange Rates, and Sectoral Trade Balances of Major Industrial Countries


  • Stephen S. Golub

    (International Monetary Fund)


This paper uses a Ricardian framework to clarify the role of microeconomic and macroeconomic factors governing the time-series and cross-sectional behavior of sectoral trade balances. Unit labor costs and trade balances are calculated for several sectors for the seven major industrial countries. The time-series and cross-sectional variation in sectoral unit labor costs is decomposed into relative productivity, wage differentials, and exchange rate variations. The main findings are that changes over time in sectoral trade balances, especially for the United States and Japan, are quite well explained by the evolution of unit labor cost, suggesting that trade patterns conform to comparative advantage. The cross-sectional results are, however, less conclusive.

Suggested Citation

  • Stephen S. Golub, 1994. "Comparative Advantage, Exchange Rates, and Sectoral Trade Balances of Major Industrial Countries," IMF Staff Papers, Palgrave Macmillan, vol. 41(2), pages 286-313, June.
  • Handle: RePEc:pal:imfstp:v:41:y:1994:i:2:p:286-313

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    References listed on IDEAS

    1. Hansen, Lars Peter & Hodrick, Robert J, 1980. "Forward Exchange Rates as Optimal Predictors of Future Spot Rates: An Econometric Analysis," Journal of Political Economy, University of Chicago Press, vol. 88(5), pages 829-853, October.
    2. Arrau, Patricio & De Gregorio, Jose & Reinhart, Carmen M. & Wickham, Peter, 1995. "The demand for money in developing countries: Assessing the role of financial innovation," Journal of Development Economics, Elsevier, vol. 46(2), pages 317-340, April.
    3. Hausman, Jerry, 2015. "Specification tests in econometrics," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 38(2), pages 112-134.
    4. Angus Deaton & Guy Laroque, 1992. "On the Behaviour of Commodity Prices," Review of Economic Studies, Oxford University Press, vol. 59(1), pages 1-23.
    5. Rudiger Dornbusch, 1985. "Policy and Performance Links between LDC Debtors and Industrial Nations," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 16(2), pages 303-368.
    6. Leamer, Edward E., 1985. "Vector autoregressions for causal inference?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 22(1), pages 255-304, January.
    7. Graciela Kaminsky & Manmohan S. Kumar, 1990. "Efficiency in Commodity Futures Markets," IMF Staff Papers, Palgrave Macmillan, vol. 37(3), pages 670-699, September.
    8. Alogoskoufis, George & Varangis, Panos, 1992. "OECD fiscal policies and the relative prices of primary commodities," Policy Research Working Paper Series 955, The World Bank.
    9. Joshua Aizenman & Eduardo R. Borensztein, 1988. "Debt and Conditionality under Endogenous Terms of Trade Adjustment," IMF Staff Papers, Palgrave Macmillan, vol. 35(4), pages 686-713, December.
    10. Gilbert, Christopher L, 1989. "The Impact of Exchange Rates and Developing Country Debt on Commodity Prices," Economic Journal, Royal Economic Society, vol. 99(397), pages 773-784, September.
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    Cited by:

    1. Carlin, Wendy & Glyn, Andrew & Van Reenen, John, 2001. "Export Market Performance of OECD Countries: An Empirical Examination of the Role of Cost Competitiveness," Economic Journal, Royal Economic Society, vol. 111(468), pages 128-162, January.
    2. Ahmet Faruk Aysan & Yavuz Selim Hacihasanoglu, 2007. "Investigation on the Determinants of Turkish Export-Boom in 2000s," Working Papers 2007/19, Bogazici University, Department of Economics.
    3. Edwards, Lawrence & Golub, Stephen S., 2004. "South Africa's International Cost Competitiveness and Exports in Manufacturing," World Development, Elsevier, vol. 32(8), pages 1323-1339, August.
    4. Brigitte Granville & Dominik Nagly, 2015. "Conflicting Incentives for Public Support for EMU," Manchester School, University of Manchester, vol. 83, pages 142-157, December.
    5. Brigitte Granville & Dominik Nagly, 2014. "Conflicting incentives for the public to support the EMU," Working Papers 50, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.
    6. Özler, Sule & Taymaz, Erol & YIlmaz, Kamil, 2009. "History Matters for the Export Decision: Plant-Level Evidence from Turkish Manufacturing Industry," World Development, Elsevier, vol. 37(2), pages 479-488, February.

    More about this item

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements


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