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East is East and West is West: A Ricardian-Heckscher-Ohlin Model of Comparative Advantage

  • Peter M. Morrow

    (University of Toronto)

Models of comparative advantage are usually based either on differences in factor abundance or differences in total factor productivity within a country despite considerable empirical evidence that both matter. This paper articulates a unified and tractable model in which comparative advantage exists due to differences in factor abundance and relative productivity differences across a continuum of industries with monopolistic competition and increasing returns to scale. I provide evidence that both sources of comparative advantage shape international production patterns. In addition, I find that relative productivity differences across industries are uncorrelated with the factor intensities of these industries. Therefore, each of the two forces for comparative advantage offers valid partial descriptions of the data. Consequently, simply aggregating the predictions of the factor abundance-based and relative productivity-based models can be used to obtain a full description of industry-by-industry production patterns.

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File URL: http://www.fordschool.umich.edu/rsie/workingpapers/Papers551-575/r575.pdf
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Paper provided by Research Seminar in International Economics, University of Michigan in its series Working Papers with number 575.

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Length: 53 pages
Date of creation: Jan 2008
Date of revision:
Handle: RePEc:mie:wpaper:575
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