IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Unpacking Sources of Comparative Advantage : A Quantitative Approach

Author Info

  • Davin Chor

    (SMU)

Abstract

This paper develops an approach for quantifying the importance of different sources of comparative advantage for country welfare. To explain patterns of specialization, I present a multi-country trade model that extends Eaton and Kortum (2002) to predict industry trade ows. In this framework, comparative advantage is determined by the interaction of country and industry characteristics, with countries specializing in industries whose specific production needs they are best able to meet with their factor endowments and institutional strengths. I estimate the model parameters on a large dataset of bilateral trade ows, presenting results from both a baseline OLS approach, as well as a simulated method of moments (SMM) procedure to account for the prevalence of zero trade ows in the data. I apply the model to explore various quantitative questions, in particular how much distance, Ricardian productivity, factor endowments, and institutional conditions each matter for country welfare in the global trade equilibrium. I also illustrate the shift in industry composition and the accompanying welfare gains in policy experiments where a country raises its factor endowments or improves the quality of its institutions.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.eaber.org/node/22071
Download Restriction: no

Paper provided by East Asian Bureau of Economic Research in its series Macroeconomics Working Papers with number 22071.

as
in new window

Length:
Date of creation: Jan 2008
Date of revision:
Handle: RePEc:eab:macroe:22071
Contact details of provider: Postal: JG Crawford Building #13, Asia Pacific School of Economics and Government, Australian National University, ACT 0200
Web page: http://www.eaber.org

More information through EDIRC

Keywords: Comparative Advantage; bilateral trade flows; Gravity; Ricardian model; Factor Endowments; institutional determinants of trade; simulated method of moments;

Other versions of this item:

Find related papers by JEL classification:
  • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
  • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
  • F15 - International Economics - - Trade - - - Economic Integration
  • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Journal of Economic Literature, American Economic Association, vol. 42(3), pages 691-751, September.
  2. Kalina Manova, 2008. "Credit Constraints, Heterogeneous Firms, and International Trade," NBER Working Papers 14531, National Bureau of Economic Research, Inc.
  3. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
  4. James Harrigan, 1996. "Technology, Factor Supplies and International Specialization: Estimating the Neoclassical Model," NBER Working Papers 5722, National Bureau of Economic Research, Inc.
  5. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jenson & Samuel Kortum, 2000. "Plants and Productivity in International Trade," NBER Working Papers 7688, National Bureau of Economic Research, Inc.
  6. Beck, Thorsten, 2001. "Financial dependence and international trade," Policy Research Working Paper Series 2609, The World Bank.
  7. Kletzer, Kenneth & Bardhan, Pranab, 1987. "Credit markets and patterns of international trade," Journal of Development Economics, Elsevier, vol. 27(1-2), pages 57-70, October.
  8. Kiminori Matsuyama, 2004. "Credit Market Imperfections and Patterns of International Trade and Capital Flows," Discussion Papers 1389, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  9. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output per Worker than Others?," NBER Working Papers 6564, National Bureau of Economic Research, Inc.
  10. Rose, Andrew K, 2002. "Do We Really Know that the WTO Increases Trade?," CEPR Discussion Papers 3538, C.E.P.R. Discussion Papers.
  11. repec:ner:tilbur:urn:nbn:nl:ui:12-3125509 is not listed on IDEAS
  12. Huiwen Lai & Susan Chun Zhu, 2004. "The determinants of bilateral trade," Canadian Journal of Economics, Canadian Economics Association, vol. 37(2), pages 459-483, May.
  13. Daniel Berkowitz & Johannes Moenius & Katharina Pistor, 2006. "Trade, Law, and Product Complexity," The Review of Economics and Statistics, MIT Press, vol. 88(2), pages 363-373, May.
  14. Andrei A. Levchenko, 2004. "Institutional Quality and International Trade," IMF Working Papers 04/231, International Monetary Fund.
  15. Keith E. Maskus & Shuichiro Nishioka, 2008. "Development-Related Biases in Factor Productivities and the HOV Model of Trade," CESifo Working Paper Series 2253, CESifo Group Munich.
  16. Juan Botero & Simeon Djankov & Rafael Porta & Florencio C. Lopez-De-Silanes, 2004. "The Regulation of Labor," The Quarterly Journal of Economics, MIT Press, vol. 119(4), pages 1339-1382, November.
  17. Eaton Jonathan & Tamura Akiko, 1994. "Bilateralism and Regionalism in Japanese and U.S. Trade and Direct Foreign Investment Patterns," Journal of the Japanese and International Economies, Elsevier, vol. 8(4), pages 478-510, December.
  18. Francis Kramarz & Jonathan Eaton & Samuel Kortum, 2005. "An Anatomy of International Trade: Evidence from French Firms," 2005 Meeting Papers 197, Society for Economic Dynamics.
  19. Debeare, Peter, 2003. "Relative Factor Abundance and Trade," Journal of Political Economy, University of Chicago Press, vol. 111(3), pages 589-610, June.
  20. Huiwen Lai & Daniel Trefler, 2002. "The Gains from Trade with Monopolistic Competition: Specification, Estimation, and Mis-Specification," NBER Working Papers 9169, National Bureau of Economic Research, Inc.
  21. Alejandro Cuñat & Marc J. Melitz, 2012. "Volatility, Labor Market Flexibility, And The Pattern Of Comparative Advantage," Journal of the European Economic Association, European Economic Association, vol. 10(2), pages 225-254, 04.
  22. Joao Santos Silva & Silvana Tenreyro, 2005. "The Log of Gravity," CEP Discussion Papers dp0701, Centre for Economic Performance, LSE.
  23. José Wynne, 2005. "Wealth as a Determinant of Comparative Advantage," American Economic Review, American Economic Association, vol. 95(1), pages 226-254, March.
  24. Donald R. Davis & David E. Weinstein, 1998. "An Account of Global Factor Trade," Harvard Institute of Economic Research Working Papers 1849, Harvard - Institute of Economic Research.
  25. Dornbusch, Rudiger & Fischer, Stanley & Samuelson, Paul A, 1977. "Comparative Advantage, Trade, and Payments in a Ricardian Model with a Continuum of Goods," American Economic Review, American Economic Association, vol. 67(5), pages 823-39, December.
  26. Rauch, James E., 1999. "Networks versus markets in international trade," Journal of International Economics, Elsevier, vol. 48(1), pages 7-35, June.
  27. Rajan, Raghuram G & Zingales, Luigi, 1998. "Financial Dependence and Growth," American Economic Review, American Economic Association, vol. 88(3), pages 559-86, June.
  28. Pakes, Ariel & Pollard, David, 1989. "Simulation and the Asymptotics of Optimization Estimators," Econometrica, Econometric Society, vol. 57(5), pages 1027-57, September.
  29. Peter M. Morrow, 2008. "East is East and West is West: A Ricardian-Heckscher-Ohlin Model of Comparative Advantage," Working Papers 575, Research Seminar in International Economics, University of Michigan.
  30. Nunn, Nathan, 2007. "Relationship-Specificity, Incomplete Contracts, and the Pattern of Trade," Scholarly Articles 4686801, Harvard University Department of Economics.
  31. James E. Anderson & Douglas Marcouiller, 2002. "Insecurity And The Pattern Of Trade: An Empirical Investigation," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 342-352, May.
  32. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2008. "Estimating Trade Flows: Trading Partners and Trading Volumes," The Quarterly Journal of Economics, MIT Press, vol. 123(2), pages 441-487, 05.
  33. John Romalis, 2004. "Factor Proportions and the Structure of Commodity Trade," American Economic Review, American Economic Association, vol. 94(1), pages 67-97, March.
  34. Robert C. Feenstra & Robert E. Lipsey & Haiyan Deng & Alyson C. Ma & Hengyong Mo, 2005. "World Trade Flows: 1962-2000," NBER Working Papers 11040, National Bureau of Economic Research, Inc.
  35. Trefler, Daniel, 1995. "The Case of the Missing Trade and Other Mysteries," American Economic Review, American Economic Association, vol. 85(5), pages 1029-46, December.
  36. Shikher, Serge, 2011. "Capital, technology, and specialization in the neoclassical model," Journal of International Economics, Elsevier, vol. 83(2), pages 229-242, March.
  37. Priya Ranjan & Jae Young Lee, 2007. "Contract Enforcement And International Trade," Economics and Politics, Wiley Blackwell, vol. 19(2), pages 191-218, 07.
  38. Golub, Stephen S & Hsieh, Chang-Tai, 2000. "Classical Ricardian Theory of Comparative Advantage Revisited," Review of International Economics, Wiley Blackwell, vol. 8(2), pages 221-34, May.
  39. Baldwin, Robert E, 1979. "Determinants of Trade and Foreign Investment: Further Evidence," The Review of Economics and Statistics, MIT Press, vol. 61(1), pages 40-48, February.
  40. Beck, Thorsten, 2001. "Financial development and international trade : is there a link?," Policy Research Working Paper Series 2608, The World Bank.
  41. Costinot, Arnaud & Komunjer, Ivana, 2006. "What Goods Do Countries Trade? New Ricardian Predictions," University of California at San Diego, Economics Working Paper Series qt86n316hw, Department of Economics, UC San Diego.
  42. 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.
  43. Deardorff, Alan V., 1984. "Testing trade theories and predicting trade flows," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 10, pages 467-517 Elsevier.
  44. Costinot, Arnaud, 2007. "On the Origins of Comparative Advantage," University of California at San Diego, Economics Working Paper Series qt07g7g8h8, Department of Economics, UC San Diego.
  45. repec:ner:tilbur:urn:nbn:nl:ui:12-3125515 is not listed on IDEAS
  46. Baldwin, Robert E, 1971. "Determinants of the Commodity Structure of U.S. Trade," American Economic Review, American Economic Association, vol. 61(1), pages 126-46, March.
  47. Jon Haveman & David Hummels, 2004. "Alternative hypotheses and the volume of trade: the gravity equation and the extent of specialization," Canadian Journal of Economics, Canadian Economics Association, vol. 37(1), pages 199-218, February.
  48. Svaleryd, Helena & Vlachos, Jonas, 2005. "Financial markets, the pattern of industrial specialization and comparative advantage: Evidence from OECD countries," European Economic Review, Elsevier, vol. 49(1), pages 113-144, January.
  49. repec:ner:tilbur:urn:nbn:nl:ui:12-3125518 is not listed on IDEAS
  50. Acemoglu, Daron & Antras, Pol & Helpman, Elhanan, 2007. "Contracts and Technology Adoption," Scholarly Articles 3199063, Harvard University Department of Economics.
  51. Natalia Ramondo, 2006. "Size, Geography, and Multinational Production," 2006 Meeting Papers 472, Society for Economic Dynamics.
Full references (including those not matched with items on IDEAS)

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

as in new window


Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Access and download statistics

When requesting a correction, please mention this item's handle: RePEc:eab:macroe:22071. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shiro Armstrong)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.