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A world trade model with bilateral trade based on comparative advantage

  • Anders Hammer Str�mman
  • Faye Duchin

This paper describes an extension of Duchin's world trade model to include the explicit representation of transportation costs, permitting the endogenous determination of bilateral trade flows and region-specific prices. The original model is a linear program that, based on comparative advantage and the minimization of factor use, determines regional production and trade flows as well as world prices and scarcity rents for m regions, n good, and k factors. The new world trade model with bilateral trade achieves its objectives by introducing transportation services and geographically dependent transportation requirements for each traded good and each pair of potential trade partners. The formulation of this model and its major properties are presented, and results from a preliminary analysis with 11 regions, eight goods, four transportation sectors, and six factors of production are reported and compared with corresponding results from the world trade model. On the basis of this comparison, we conclude that transportation costs have little impact on a region's total imports or exports of a given commodity.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/09535310600844300
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Article provided by Taylor & Francis Journals in its journal Economic Systems Research.

Volume (Year): 18 (2006)
Issue (Month): 3 ()
Pages: 281-297

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Handle: RePEc:taf:ecsysr:v:18:y:2006:i:3:p:281-297
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  1. Faye Duchin, 2003. "A World Trade Model Based on Comparative Advantage with m Regions, n Goods, and k Factors," Rensselaer Working Papers in Economics 0309, Rensselaer Polytechnic Institute, Department of Economics, revised Mar 2004.
  2. Anders Hammer Str�mman & Edgar G. Hertwich & Faye Duchin, 2005. "Shifting Trade Patterns as a Means to Reduce Global CO2 Emissions: Implications for the Aluminium Industry," Rensselaer Working Papers in Economics 0508, Rensselaer Polytechnic Institute, Department of Economics.
  3. Leontief, Wassily, 1977. "The future of the world economy+," Socio-Economic Planning Sciences, Elsevier, vol. 11(3), pages 171-182.
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