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Comparative and absolute advantage in the Asia-Pacific region

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  • Stephen Golub

Abstract

According to classical Ricardian trade theory, overall productivity differences between countries are manifested as differences in real labor incomes (absolute advantage), while the sectoral pattern of productivity differences determines trade patterns (comparative advantage). This paper investigates both of these principles, with a focus on the Pacific Basin. I first examine the trends and relationships between productivity and labor compensation in aggregate manufacturing. Wages and productivity are broadly related, as the theory of absolute advantage suggests. The paper then tests the Ricardian theory of comparative advantage on bilateral and multilateral trade flows using the OECD STAN (Structural Analysis Industrial) database, which disaggregates manufacturing into about 50 sectors for a number of OECD countries, including Mexico and Korea, over 1970-1992. The STAN database is used to calculate bilateral trade patterns, productivity, and unit labor cost by sector. Cross-section seemingly unrelated regressions of sectoral trade flows on sectoral unit labor costs are run for a number of countries vis-a-vis the United States. Comparative advantage helps to explain trade patterns, albeit to a limited degree. In terms of both absolute and comparative advantage, the results for Japan are the most consistent with the Ricardian theory, despite the popular view that Japan is \"different\" and immune from normal mechanisms.

Suggested Citation

  • Stephen Golub, 1995. "Comparative and absolute advantage in the Asia-Pacific region," Pacific Basin Working Paper Series 95-09, Federal Reserve Bank of San Francisco.
    • Handle: RePEc:fip:fedfpb:95-09
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    Citations

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    Cited by:

    1. Stephen Golub, 1995. "Productivity and labor costs in newly industrializing countries," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue aug18.
    2. Stephen Guisinger, 2001. "From OLI to OLMA: Incorporating Higher Levels of Environmental and Structural Complexity into the Eclectic Paradigm," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 8(2), pages 257-272.
    3. Stephen Golub, 1998. "Does trade with low-wage countries hurt American workers?," Business Review, Federal Reserve Bank of Philadelphia, issue Mar, pages 3-15.
    4. Felipe, Jesus, 2009. "A Cautionary Note on the Interpretation of Unit Labor Costs as an Indicator of Competitiveness, with Reference to the Philippines," Philippine Journal of Development PJD 2007 Vol. XXXIV No. 2, Philippine Institute for Development Studies.
    5. Jesus Felipe, 2005. "A Note On Competitiveness, Unit Labor Costs And Growth: Is "Kaldor'S Paradox" A Figment Of Interpretation?," CAMA Working Papers 2005-06, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    6. Aneta Jarosz-Angowska & Marek Angowski & Magdalena Kakol & Anna Nowak & Monika Rozanska-Boczula, 2020. "Agricultural Competitive Potential and Competitive Position in the International Trade of Agricultural and Food Products in the European Union," European Research Studies Journal, European Research Studies Journal, vol. 0(Special 2), pages 779-803.

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