A comparison of specialisation gains from trade in in final and intermediate goods

Abstract

This paper sets out a method for measuring and comparing the specialisation gains from trade in intermediate goods and final goods, based upon a vertically integrated sectors (VIS) modelling approach. The factor input requirements of domestic production to replace imported intermediates is compared with the factor requirements of the ‘compensating’ exports required to purchase the imports. This method is applied to the UK economy, using a 28 sector model and a breakdown of factor inputs into land, labour and capital. Estimates of net factor‐usage or saving on individual factor (weighted for factor quality differences) and multi‐factor bases are reported. The results indicate that trade in inputs and outputs was net labour‐using, and net‐capital and land‐saving in 1979. The overall, or multi‐factor, gain from trade in intermediates was greater than for trade in final goods in 1979, with overall resource savings of 3·01% and 1·73% respectively.