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The Evolution of Comparative Advantage: Measurement and Implications

Listed author(s):
  • Levchenko, Andrei A.

    ()

    (University of Michigan)

  • Zhang, Jing

    (Federal Reserve Bank of Chicago)

We estimate productivities at the sector level for 72 countries and 5 decades, and examine how they evolve over time in both developed and developing countries. In both country groups, comparative advantage has become weaker: productivity grew systematically faster in sectors that were initially at greater comparative disadvantage. These changes have had a significant impact on trade volumes and patterns, and a non-negligible welfare impact. In the counterfactual scenario in which each country's comparative advantage remained the same as in the 1960s, and technology in all sectors grew at the same country-specific average rate, trade volumes would be higher, cross-country export patterns more dissimilar, and intra-industry trade lower than in the data. In this counterfactual scenario, welfare is also 1.6% higher for the median country compared to the baseline. The welfare impact varies greatly across countries, ranging from −1.1% to +4.3% among OECD countries, and from −6% to +41.9% among non-OECD countries.

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Paper provided by Federal Reserve Bank of Chicago in its series Working Paper Series with number WP-2014-12.

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Length: 60 pages
Date of creation: 07 Oct 2014
Handle: RePEc:fip:fedhwp:wp-2014-12
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