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Competitive versus comparative advantage

Author

Listed:
  • J. Peter Neary

Abstract

I explore the interactions between comparative, competitive and absolute advantage in a two-country model of oligopoly in general equilibrium. Comparative advantage always determines the direction of trade, but both competitive and absolute advantage affect resource allocation, trade patterns and trade volumes. Competitive advantage in the sense of more home firms drives foreign firms out of marginal sectors but also makes some marginal home sectors uncompetitive. Absolute advantage in the sense of a uniform fall in home costs tends to raise home output in all sectors but also leads both countries to specialise less in accordance with comparative advantage.

Suggested Citation

  • J. Peter Neary, 2002. "Competitive versus comparative advantage," Working Papers 200219, School of Economics, University College Dublin.
    • Handle: RePEc:ucn:wpaper:200219
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    File URL: http://hdl.handle.net/10197/1325
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    References listed on IDEAS

    as
    1. J. Peter Neary, 2016. "International Trade in General Oligopolistic Equilibrium," Review of International Economics, Wiley Blackwell, vol. 24(4), pages 669-698, September.
    2. J.Peter Neary, 2002. "Foreign Competition and Wage Inequality," Review of International Economics, Wiley Blackwell, vol. 10(4), pages 680-693, November.
    3. Dornbusch, Rudiger & Fischer, Stanley & Samuelson, Paul A, 1977. "Comparative Advantage, Trade, and Payments in a Ricardian Model with a Continuum of Goods," American Economic Review, American Economic Association, vol. 67(5), pages 823-839, December.
    4. Weinstein, David E., 1992. "Competition and unilateral dumping," Journal of International Economics, Elsevier, vol. 32(3-4), pages 379-388, May.
    5. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    6. J.Peter Neary, 2001. "Of Hype and Hyperbolas: Introducing the New Economic Geography," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 536-561, June.
    7. repec:bla:reviec:v:10:y:2002:i:4:p:680-93 is not listed on IDEAS
    8. J. Peter Neary, 2000. "Monopolistic competition and international trade theory," Working Papers 200025, School of Economics, University College Dublin.
    9. Peter G. Warr, 1994. "Comparative and Competitive Advantage," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 8(2), pages 1-14, November.
    10. Brander, James A., 1981. "Intra-industry trade in identical commodities," Journal of International Economics, Elsevier, vol. 11(1), pages 1-14, February.
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    Keywords

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    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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