The Empirics Of Comparative Advantage: Overcoming The Tyranny of Non-Refutability

Abstract

I assess the empirical evidence on comparative advantage. I argue that the Heckscher-Ohlin-Vanek (H-O-V) relationship is not a refutable general equilibrium proposition. Consequently, the empirical Heckscher-Ohlin literature has been suffering from the tyranny of nonrefutability. The trade governing principle of comparative advantage, the Ricardo-Haberler-Deardorff (R-H-D) theorem, yields a refutable general equilibrium prediction about the pattern of international trade and allows for a theory-based assessment of the magnitude of the gains from trade. The recent experimental evidence on Japan's 19th century opening up to world trade provides a strong case for the hypothesis that comparative advantage governed Japan's international trade in its early trading years. The aggregate gains from that trade are estimated to be no larger than 9 % of Japan's GDP.