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The Location of Comparative Advantages on the Basis of Fundamentals Only

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  • Thijs Ten Raa
  • Pierre Mohnen

Abstract

We propose a new way to locate the comparative advantages of two economies linked by international trade. We construct a competitive benchmark based only on the fundamentals of the two economies: endowments, preferences and technologies. The direction of trade is endogenously determined by a linear program with an input-output core. The factor contents of that trade are compared with factor endowments to test the Heckscher-Ohlin model in the presence of different technologies and preferences. We can also evaluate the gains of free bilateral trade. The model is applied to a customs union between Europe and Canada. The Heckscher-Ohlin factor abundance specialization hypothesis is supported by the data.

Suggested Citation

  • Thijs Ten Raa & Pierre Mohnen, 2001. "The Location of Comparative Advantages on the Basis of Fundamentals Only," Economic Systems Research, Taylor & Francis Journals, vol. 13(1), pages 93-108.
  • Handle: RePEc:taf:ecsysr:v:13:y:2001:i:1:p:93-108
    DOI: 10.1080/09535310120026265
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    1. Davis, Donald R. & David E. Weinstein & Scott C. Bradford & Kazushige Shimpo, 1997. "Using International and Japanese Regional Data to Determine When the Factor Abundance Theory of Trade Works," American Economic Review, American Economic Association, vol. 87(3), pages 421-446, June.
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    4. Thijs ten Raa & Pierre Mohnen, 2009. "The Location of Comparative Advantages on the Basis of Fundamentals Only," World Scientific Book Chapters,in: Input–Output Economics: Theory And Applications Featuring Asian Economies, chapter 23, pages 425-446 World Scientific Publishing Co. Pte. Ltd..
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    Cited by:

    1. Eric O’N. Fisher & Kathryn G. Marshall, 2016. "Leontief was not right after all," Journal of Productivity Analysis, Springer, vol. 46(1), pages 15-24, August.
    2. Thijs ten Raa & Pierre Mohnen, 2009. "The Location of Comparative Advantages on the Basis of Fundamentals Only," World Scientific Book Chapters,in: Input–Output Economics: Theory And Applications Featuring Asian Economies, chapter 23, pages 425-446 World Scientific Publishing Co. Pte. Ltd..
    3. Victoria Shestalova, 2001. "General Equilibrium Analysis of International TFP Growth Rates," Economic Systems Research, Taylor & Francis Journals, vol. 13(4), pages 391-404.
    4. Shu-hen Chiang, 2009. "Location quotient and trade," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 43(2), pages 399-414, June.
    5. Thijs ten Raa & Haoran Pan, 2009. "Competitive Pressures on China: Income Inequality and Migration," World Scientific Book Chapters,in: Input–Output Economics: Theory And Applications Featuring Asian Economies, chapter 24, pages 449-485 World Scientific Publishing Co. Pte. Ltd..
    6. Alex Hoen & Jan Oosterhaven, 2006. "On the measurement of comparative advantage," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 40(3), pages 677-691, August.
    7. Sahoo, A., 2008. "Essays on the Indian economy : Competitive pressure, productivity and performance," Other publications TiSEM 374e9035-815c-43fe-a68e-e, Tilburg University, School of Economics and Management.
    8. Thijs Raa & Victoria Shestalova, 2011. "The Solow residual, Domar aggregation, and inefficiency: a synthesis of TFP measures," Journal of Productivity Analysis, Springer, vol. 36(1), pages 71-77, August.
    9. Ten Raa, T. & Shestalova, V., 2006. "Alternative Measures of Total Factor Productivity Growth," Discussion Paper 2006-54, Tilburg University, Center for Economic Research.
    10. Marian Leimbach & Baumstark, Lavinia, 2011. "Intertemporal trade and the Integrated Assessment of climate change mitigation policies," EcoMod2011 3036, EcoMod.
    11. repec:dgr:rugsom:04c11 is not listed on IDEAS
    12. Prieto, Angel M. & Zofio, Jose L., 2007. "Network DEA efficiency in input-output models: With an application to OECD countries," European Journal of Operational Research, Elsevier, vol. 178(1), pages 292-304, April.
    13. Kagawa, Shigemi, 2008. "How does Japanese compliance with the Kyoto Protocol affect environmental productivity in China and Japan?," Structural Change and Economic Dynamics, Elsevier, vol. 19(2), pages 173-188, June.

    More about this item

    Keywords

    Comparative Advantage; Gains Free Trade;

    JEL classification:

    • F10 - International Economics - - Trade - - - General

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