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The Location of Comparative Advantages on the Basis of Fundamentals Only

  • Pierre Mohnen
  • Thijs Ten Raa

We locate the comparative advantages of Canada and Europe on the basis of their fundamentals only: endowments, technologies, and preferences. A linear program with an input-output core and an algorith for the balance of payments constraint will determine the efficient allocation of resources. The supporting allocations determine the optimum pattern of trade. The Canadian advantage compared to Europe is in minerals, machines and clothing & footwear. Gains to free bilateral trade are estimated to be negligible for the big economy, Europe, but significant for the small one, Canada. The pattern of comparative advantage persists when we allowfor free access to technology and consumption coefficients and, therefore, can be ascribed to the endowments. Nous détectons les avantages comparatifs au Canada et en Europe à partir des éléments fondamentaux d'une économie : les dotations, les technologies et les préférences. Par la programmation linéaire, en utilisant les tableaux entrée-sortie et un algorithme servant à imposer l'équilibre de la balance commerciale, nous déterminons l'allocation optimale des ressources, qui sous-tend les échanges optimaux. Le Canada a un avantage comparatif par rapport à l'Europe dans les miéraux, la machineries, les vêtements et les chaussures. Les gains à l'échange sont minimes pour la grande économie, l'Europe,0501s substantiels pour le petit pays, le Canada. La structure des avantages comparatifs persiste quand nous permettons le libre choix entre les technologies et les préférences des deux pays. Les dotations ressortent donc comme étant le facteur déterminant de la structure des avantages comparatifs.

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Paper provided by CIRANO in its series CIRANO Working Papers with number 97s-07.

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Length: 25 pages
Date of creation: 01 Feb 1997
Date of revision:
Handle: RePEc:cir:cirwor:97s-07
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  1. Jansen, Pieter Kop & ten Raa, Thijs, 1990. "The Choice of Model in the Construction of Input-Output Coefficients Matrices," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(1), pages 213-27, February.
  2. Harry P. Bowen & Edward E. Leamer & Leo Sveikauskas, 1986. "Multicountry, Multifactor Tests of the Factor Abundance Theory," NBER Working Papers 1918, National Bureau of Economic Research, Inc.
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  8. Leamer, E. & Levingsohn, J., 1994. "International Trade Theory: The Evidence," Working Papers 368, Research Seminar in International Economics, University of Michigan.
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  10. Diewart, W Erwin & Morrison, Catherine J, 1986. "Adjusting Output and Productivity Indexes for Changes in the Terms of Trade," Economic Journal, Royal Economic Society, vol. 96(383), pages 659-79, September.
  11. Trefler, Daniel, 1993. "International Factor Price Differences: Leontief Was Right!," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 961-87, December.
  12. Victor Ginsburgh & Jean Waelbroeck, 1981. "Activity analysis and general equilibrium modelling," ULB Institutional Repository 2013/1649, ULB -- Universite Libre de Bruxelles.
  13. Chipman, John S & Tian, Guoqiang, 1992. "A General-Equilibrium Intertemporal Model of an Open Economy," Economic Theory, Springer, vol. 2(2), pages 215-46, April.
  14. Ethier, Wilfred J., 1984. "Higher dimensional issues in trade theory," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 3, pages 131-184 Elsevier.
  15. Romer, Paul, 1994. "New goods, old theory, and the welfare costs of trade restrictions," Journal of Development Economics, Elsevier, vol. 43(1), pages 5-38, February.
  16. 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 421-46, June.
  17. Leamer, Edward E, 1980. "The Leontief Paradox, Reconsidered," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 495-503, June.
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