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Can Comparative Advantage Explain the Growth of US Trade?

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  • Cuñat, Alejandro
  • Maffezzoli, Marco

Abstract

We present a dynamic comparative advantage model in which moderate reductions in import tariffs can generate sizable increases in trade volumes over time. A fall in import tariffs has two effects on the volume of trade. First, for given factor endowments, it raises the degree of specialization of countries, leading to a larger volume of trade in the short run. Second, it raises the factor price of each country's abundant production factor, leading to diverging paths of relative factor endowments across countries and a rising degree of specialization. A simulation exercise shows that a fall in import tariffs over time produces a disproportional increase in the trade share of output as in the data. Even when elasticities of substitution are not particularly high, moderate reductions in trade barriers lead to large trade volumes over time.

Suggested Citation

  • Cuñat, Alejandro & Maffezzoli, Marco, 2005. "Can Comparative Advantage Explain the Growth of US Trade?," CEPR Discussion Papers 5348, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:5348
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    Cited by:

    1. Alejandro Cuñat & Szabolcs Deak & Marco Maffezzoli, 2008. "Tax Cuts in Open Economies," CEP Discussion Papers dp0860, Centre for Economic Performance, LSE.
    2. Yonghyup Oh & Wonho Song, 2008. "Sub-Prime Financial Crisis and US Policy Choices," Finance Working Papers 22995, East Asian Bureau of Economic Research.
    3. Breinlich, Holger & Ottaviano, Gianmarco I.P. & Temple, Jonathan R.W., 2014. "Regional Growth and Regional Decline," Handbook of Economic Growth,in: Handbook of Economic Growth, edition 1, volume 2, chapter 4, pages 683-779 Elsevier.
    4. repec:eee:eecrev:v:100:y:2017:i:c:p:1-27 is not listed on IDEAS
    5. Ingianni, Andrea, 2012. "Intra-European Union trade openness and new members’ output convergence: A time-series analysis," Economics Discussion Papers 2012-5, School of Economics, Kingston University London.
    6. Zymek, Robert, 2015. "Factor proportions and the growth of world trade," Journal of International Economics, Elsevier, vol. 95(1), pages 42-53.
    7. Philip Sauré, 2012. "Bounded Love of Variety and Patterns of Trade," Open Economies Review, Springer, vol. 23(4), pages 645-674, September.
    8. Cuñat Alejandro & Maffezzoli Marco, 2007. "Specialization Patterns and the Factor Bias of Technology," The B.E. Journal of Macroeconomics, De Gruyter, vol. 7(1), pages 1-27, July.
    9. Auer, Raphael A., 2015. "Human capital and the dynamic effects of trade," Journal of Development Economics, Elsevier, vol. 117(C), pages 107-118.
    10. Raphael Anton Auer, 2010. "Consumer Heterogeneity and the Impact of Trade Liberalization: How Representative is the Representative Agent Framework?," Working Papers 2010-13, Swiss National Bank.
    11. Raphael Auer, 2009. "Product Heterogeneity, Within-Industry Trade Patterns, and the Home Bias of Consumption?," Working Papers 09.05, Swiss National Bank, Study Center Gerzensee.
    12. Fuxiang Wu & Zhibiao Liu, 2010. "Microeconomic analysis on the growth of trade volume in China: 1978–2007," Frontiers of Economics in China, Springer;Higher Education Press, vol. 5(2), pages 299-324, June.
    13. Raphael A. Auer, 2013. "Product Heterogeneity, Cross-Country Taste Differences, and the Consumption Home Bias," Working Papers 13.01, Swiss National Bank, Study Center Gerzensee.
    14. William F. Lincoln & Andrew H. McCallum, 2011. "Entry Costs & Increasing Trade," William Davidson Institute Working Papers Series wp1024, William Davidson Institute at the University of Michigan.
    15. Philip Sauré, 2007. "Productivity Growth, Bounded Marginal Utility, and Patterns of Trade," Economics Working Papers ECO2007/56, European University Institute.
    16. Immaculada Martínez-Zarzoso & Felicitas Nowak-Lehmann D. & Sebastian Vollmer, 2007. "Competitiveness – A Comparison of China and Mexico," CESifo Working Paper Series 2111, CESifo Group Munich.

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    Keywords

    Heckscher-Ohlin; international trade;

    JEL classification:

    • F1 - International Economics - - Trade
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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