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The location of comparative advantages on the basis of fundamentals only

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  • Ten Raa, T.

    (Tilburg University, Center For Economic Research)

  • Mohnen, P.

Abstract

We propose a new way to locate the comparative advantages of two economies linked by international trade. We construct a competitive benchmark based only on the fundamentals of the two economies: endowments, preferences and technologies. The direction of trade is endogenously determined by a linear program with an input-output core. The factor contents of that trade are compared with factor endowments to test the Heckscher-Ohlin model in the presence of different technologies and preferences. We can also evaluate the gains of free bilateral trade. The model is applied to a customs union between Europe and Canada. The Heckscher-Ohlin factor abundance specialization hypothesis is supported by the data.
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Suggested Citation

  • Ten Raa, T. & Mohnen, P., 1996. "The location of comparative advantages on the basis of fundamentals only," Discussion Paper 1996-81, Tilburg University, Center for Economic Research.
  • Handle: RePEc:tiu:tiucen:1af99c7b-042d-47f3-a73f-1d3977d91890
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    References listed on IDEAS

    as
    1. Davis, Donald R. & David E. Weinstein & Scott C. Bradford & Kazushige Shimpo, 1997. "Using International and Japanese Regional Data to Determine When the Factor Abundance Theory of Trade Works," American Economic Review, American Economic Association, vol. 87(3), pages 421-446, June.
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    3. Pieter Kop Jansen & Thijs ten Raa, 2009. "The Choice of Model in the Construction of Input–Output Coefficients Matrices," World Scientific Book Chapters, in: Input–Output Economics: Theory And Applications Featuring Asian Economies, chapter 4, pages 47-66, World Scientific Publishing Co. Pte. Ltd..
    4. Thijs ten Raa & Pierre Mohnen, 2009. "The Location of Comparative Advantages on the Basis of Fundamentals Only," World Scientific Book Chapters, in: Input–Output Economics: Theory And Applications Featuring Asian Economies, chapter 23, pages 425-446, World Scientific Publishing Co. Pte. Ltd..
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    13. repec:fth:michin:368 is not listed on IDEAS
    14. Trefler, Daniel, 1995. "The Case of the Missing Trade and Other Mysteries," American Economic Review, American Economic Association, vol. 85(5), pages 1029-1046, December.
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    Cited by:

    1. Eric O’N. Fisher & Kathryn G. Marshall, 2016. "Leontief was not right after all," Journal of Productivity Analysis, Springer, vol. 46(1), pages 15-24, August.
    2. Thijs ten Raa & Pierre Mohnen, 2009. "The Location of Comparative Advantages on the Basis of Fundamentals Only," World Scientific Book Chapters, in: Input–Output Economics: Theory And Applications Featuring Asian Economies, chapter 23, pages 425-446, World Scientific Publishing Co. Pte. Ltd..
    3. Thijs ten Raa & Haoran Pan, 2009. "Competitive Pressures on China: Income Inequality and Migration," World Scientific Book Chapters, in: Input–Output Economics: Theory And Applications Featuring Asian Economies, chapter 24, pages 449-485, World Scientific Publishing Co. Pte. Ltd..
    4. Alex Hoen & Jan Oosterhaven, 2006. "On the measurement of comparative advantage," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 40(3), pages 677-691, August.
    5. Ten Raa, T. & Shestalova, V., 2006. "Alternative Measures of Total Factor Productivity Growth," Other publications TiSEM 5366de12-2381-4ed8-859b-f, Tilburg University, School of Economics and Management.
    6. Thijs ten Raa & Victoria Shestalova, 2021. "The Solow Residual, Domar Aggregation, and Inefficiency: A Synthesis of TFP Measures," World Scientific Book Chapters, in: Efficiency and Input-Output Analyses Theory and Applications, chapter 2, pages 23-38, World Scientific Publishing Co. Pte. Ltd..
    7. Victoria Shestalova, 2001. "General Equilibrium Analysis of International TFP Growth Rates," Economic Systems Research, Taylor & Francis Journals, vol. 13(4), pages 391-404.
    8. Shu-hen Chiang, 2009. "Location quotient and trade," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 43(2), pages 399-414, June.
    9. Sahoo, A., 2008. "Essays on the Indian economy : Competitive pressure, productivity and performance," Other publications TiSEM 374e9035-815c-43fe-a68e-e, Tilburg University, School of Economics and Management.
    10. Marian Leimbach & Baumstark, Lavinia, 2011. "Intertemporal trade and the Integrated Assessment of climate change mitigation policies," EcoMod2011 3036, EcoMod.
    11. repec:dgr:rugsom:04c11 is not listed on IDEAS
    12. Prieto, Angel M. & Zofio, Jose L., 2007. "Network DEA efficiency in input-output models: With an application to OECD countries," European Journal of Operational Research, Elsevier, vol. 178(1), pages 292-304, April.
    13. Kagawa, Shigemi, 2008. "How does Japanese compliance with the Kyoto Protocol affect environmental productivity in China and Japan?," Structural Change and Economic Dynamics, Elsevier, vol. 19(2), pages 173-188, June.

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    Keywords

    comparative advantage;

    JEL classification:

    • F10 - International Economics - - Trade - - - General

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