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Does Economic Geography Matter for International Specialization?

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  • Donald R. Davis
  • David E. Weinstein

Abstract

L_There are two principal theories of why countries trade: comparative advantage and increasing returns to scale. Yet there is no empirical work that assesses the relative importance of these two theories in accounting for production structure and trade. We use a framework that nests an increasing returns model of economic geography featuring "home market" effects with that of Heckscher-Ohlin. We employ these trade models to account for the structure of OECD manufacturing production. The data militate against the economic geography framework. Relatively few sectors match its theoretical predictions. Moreover, of the explainable variation in production patterns, endowments account for 90 per cent, economic geography but 5 per cent.
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Suggested Citation

  • Donald R. Davis & David E. Weinstein, 1996. "Does Economic Geography Matter for International Specialization?," Harvard Institute of Economic Research Working Papers 1773, Harvard - Institute of Economic Research.
    • Handle: RePEc:fth:harver:1773
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    More about this item

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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