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Proximity as a Source of Comparative Advantage

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  • Elizaveta Archanskaia

    (OFCE (OFCE))

Abstract

This paper establishes that production unbundling has coincided with an inscreasing role of input costs in shaping the pattern of comparative advantage. I show that the wedge in the cost of the input bundle across countries in a multisectoral Ricardian model is given by a composite index of trade frictions incurred in sourcing inputs. As the cost share of inputs is sector-specific this wedge becomes source of comparative advantage whereby countries characterized by relatively high proximity to input suppliers specialize in sectors which use inputs more intensively. I find robust empirical evidence that the input cost channel has growing importance over 1995-2009. Nonetheless, consistently with the fundamental intuition of Ricardian models, the ranking of relative sectoral technology stocks still determines intersectoral specialization. Between 53-55% of intersectoral variation in relative sectoral exports is explained by technology while the input cost channel contributes 3 to 8% in the full sample, and 3 to 13% for the EU-15.

Suggested Citation

  • Elizaveta Archanskaia, 2013. "Proximity as a Source of Comparative Advantage," Sciences Po publications 2013-05, Sciences Po.
  • Handle: RePEc:spo:wpmain:info:hdl:2441/dambferfb7dfprc9m054kce41
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    References listed on IDEAS

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    More about this item

    Keywords

    Ricardian model; Intersectoral specialization; Trade costs;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F15 - International Economics - - Trade - - - Economic Integration

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