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Complexity as a source of comparative advantage

Author

Listed:
  • Asier Minondo

    () (Deusto Business School - University of Deusto)

  • Francisco Requena

    () (University of Valencia)

Abstract

This paper analyzes whether complexity, measured by the number of skilled tasks that are performed simultaneously in production, explains countries' commodity trade structure. We modify Romalis (2004) model to incorporate differences in complexity across commodities together with differences in average skills across countries and monopolistic competition. Our model predicts that the share of developed countries in world trade increases with products' complexity. The empirical tests confirm this prediction. Moreover, complexity seems to provide a better explanation of countries' commodity trade structure than the one offered only by skill intensity.

Suggested Citation

  • Asier Minondo & Francisco Requena, 2012. "Complexity as a source of comparative advantage," Working Papers 1214, Department of Applied Economics II, Universidad de Valencia.
  • Handle: RePEc:eec:wpaper:1214
    as

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    File URL: ftp://147.156.210.157/RePEc/pdf/eec_1214.pdf
    File Function: First version, 2012
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    References listed on IDEAS

    as
    1. Arnaud Costinot & Lindsay Oldenski & James Rauch, 2011. "Adaptation and the Boundary of Multinational Firms," The Review of Economics and Statistics, MIT Press, vol. 93(1), pages 298-308, February.
    2. Costinot, Arnaud, 2009. "On the origins of comparative advantage," Journal of International Economics, Elsevier, vol. 77(2), pages 255-264, April.
    3. Cesar A. Hidalgo & Ricardo Hausmann, 2009. "The Building Blocks of Economic Complexity," Papers 0909.3890, arXiv.org.
    4. Alan S. Blinder, 2009. "How Many US Jobs Might be Offshorable?," World Economics, World Economics, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 10(2), pages 41-78, April.
    5. Michael Kremer, 1993. "The O-Ring Theory of Economic Development," The Quarterly Journal of Economics, Oxford University Press, vol. 108(3), pages 551-575.
    6. Chor, Davin, 2010. "Unpacking sources of comparative advantage: A quantitative approach," Journal of International Economics, Elsevier, vol. 82(2), pages 152-167, November.
    7. David H. Autor & Frank Levy & Richard J. Murnane, 2003. "The skill content of recent technological change: an empirical exploration," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
    8. Niven Winchester & David Greenaway & Geoffrey V. Reed, 2006. "Skill Classification and the Effects of Trade on Wage Inequality," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 142(2), pages 287-306, July.
    9. John Romalis, 2004. "Factor Proportions and the Structure of Commodity Trade," American Economic Review, American Economic Association, vol. 94(1), pages 67-97, March.
    10. Justin R. Pierce & Peter K. Schott, 2009. "A Concordance Between Ten-Digit U.S. Harmonized System Codes and SIC/NAICS Product Classes and Industries," NBER Working Papers 15548, National Bureau of Economic Research, Inc.
    11. Morrow, Peter M., 2010. "Ricardian-Heckscher-Ohlin comparative advantage: Theory and evidence," Journal of International Economics, Elsevier, vol. 82(2), pages 137-151, November.
    12. Barro, Robert J. & Lee, Jong Wha, 2013. "A new data set of educational attainment in the world, 1950–2010," Journal of Development Economics, Elsevier, vol. 104(C), pages 184-198.
    13. Gene M. Grossman & Esteban Rossi-Hansberg, 2008. "Trading Tasks: A Simple Theory of Offshoring," American Economic Review, American Economic Association, vol. 98(5), pages 1978-1997, December.
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    More about this item

    Keywords

    complexity; skill-intensity; factor proportions; trade structure; specialization.;

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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