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The Evolution of Comparative Advantage: Measurement and Welfare Implications

  • Jing Zhang

    (University of Michigan)

  • Andrei A. Levchenko

    (University of Michigan and NBER)

Using an industry-level dataset of production and trade spanning 75 countries and 5 decades, and a fully specified multi-sector Ricardian model, we estimate productivities at the sector level and examine how they evolve over time in both developed and developing countries. We find that in both country groups, comparative advantage has become weaker: productivity grew systematically faster in sectors that were initially at the greater comparative disadvantage. The global welfare implications of this phenomenon are significant. Relative to the counterfactual scenario in which an individual country’s comparative advantage remained the same as in the 1960s, and technology in all sectors grew at the same country-specific average rate, welfare today is 1.9% lower for the median country. The welfare impact varies greatly across countries, ranging from -0.5% to +6% among OECD countries, and from -9% to +27% among non-OECD countries. Contrary to frequently expressed concerns, changes in developing countries' comparative advantage had virtually no impact on welfare in the developed countries.

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Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 302.

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Date of creation: 2011
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Handle: RePEc:red:sed011:302
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