Pattern Of Comparative Advantage Research Articles

Market Size and Factor Endowment: Explaining Comparative Advantage in Bilateral Trade by Differences in Income and Per Capita Income

Using a gravity-type explanation of international trade flows at the industry level, it is shown that the pattern of comparative advantage in terms of sectoral export/import ratios in bilateral trade can be explained by relative income and relative per capita income. Total income of a country is a proxy of its economic size and has a positive effect on comparative advantage in most manufacturing industries (home market effect). Per capita income represents the capital-labour endowment ratio and demand conditions. In sum, it has a positive effect in (human) capital-intensive industries and a negative effect in labour-intensive industries.

Modelling the Impact of Environmental Regulations on Bilateral Trade Flows: OECD, 1990–1996

Since the early seventies an increasing attention has been paid to the impact environmental polict nmight have on foreign trade. One of the most important issues is whether countries with relatively strict environmental regulations tend to experience a deterioration of international competitiveness and thus a fall in exports and a rise in imports, of the pollution‐intensive commodities or, on the other hand, benefit from the improvement in environmentally more sensitive industries. So far, most empirical studies have concluded that the proportion of environmental costs to the total production costs is still so marginal that environmental policies have hardly any effect on comparative advantage patterns and thus on foreign trade. One of the few exceptions is Van Beers and Van den Bergh (1997), who found that stricter regulations have some negative impact on bilateral trade flows between OECD countries. The aim of this paper is to show that tyhis outcome is partly due to model mis‐specification. The analysis id based on a triple indexed model and on its variants. It is found that, as soon as both the importing and exporting country specific effects are taken into consideration, the relationship between stricter regulations and foreign trade becomes statistically insignificant. This suggests that environmental costs do not have a real impact, neither negative nor positive, on foreign trade.

Dynamic evolution of income distribution and credit-constrained human capital investment in open economies

This paper shows how the degree of credit-market imperfections affects the steady-state distributions of income and wealth, human capital investment, and the pattern of comparative advantage. The impact of trade liberalization on the accumulation of human capital depends on how it affects (1) the incentives to accumulate human capital, (2) the borrowing constraints facing human capital accumulation, and (3) the distribution of income and wealth. If the degree of credit market imperfections is low in the skill-abundant countries and high in the skill-scarce countries, then trade liberalization can increase investments in human capital in both types of countries.

The Razor's Edge: Distortions and Incremental Reform in the People's Republic of China

In a partially reformed economy, distortions beget distortions. Segments of the economy that are freed from centralized control respond to the rent-seeking opportunities implicit in the remaining distortions of the economy. The battle to capture, and then protect, these rents leads to the creation of new distortions, even as the reform process tries to move forward. In this paper I illustrate this idea with a study of the People's Republic of China. Under the plan, prices were skewed so as to concentrate profits, and hence revenue, in industry. As control over factor allocations was loosened, local governments throughout the economy sought to capture these rents by developing high margin industries. Continued reform, and growing interregional competition between duplicative industries, threatened the profitability of these industrial structures, leading local governments to impose a variety of interregional barriers to trade. Thus, the reform process led to the fragmentation of the domestic market and the distortion of regional production away from patterns of comparative advantage.

Trade Intensities with Asian Countries: Comparing Australia, Canada and Sweden

In recent years, Canadian government officials have been under increasing pressure to promote increased Canadian economic integration with fast growing Asian economies, especially Southeast Asia. While the Canadian government has become more active in promoting trade with Asia through government-sponsored trade missions and the like, there has been little research documenting the underlying causes of Canada's limited trade and investment ties to the region. This study provides some empirical evidence that Canada's trade performance with Asian countries is consistent with Canada's underlying pattern of comparative advantage. The main policy implication is that a more aggressive pursuit of freer trade and investment regimes with Asian countries might be the most promising instrument for promoting increased exports and outward direct investment to the region.

Do Knowledge Spillovers Contribute to U.S. State Output and Growth?

This paper provides empirical evidence on the contributions of interindustry and interstate knowledge spillovers to the output and growth of state manufacturing industries. The work develops a method for detecting spillovers within the output equations of the Heckscher–Ohlin trade model. This method shows how knowledge spillovers can reverse the Heckscher–Ohlin patterns of comparative advantage. The findings indicate that knowledge spillovers across states are strong enough to reverse comparative advantage; however, knowledge spillovers across industries are not strong enough to reverse comparative advantage. The interstate knowledge spillovers are geographically localized and contribute substantially to state output and growth in manufactures.

Technical change in a Ricardian model of North-South trade with increasing returns to scale

This paper examines the effect of a technical change on the pattern of North-South trade in the presence of increasing returns to scale in production. The model shows that if the North initially takes advantage of the economies of scale in advance of the South, the relative wage will be higher in the North, the North will specialize in goods with the highest economies of scale and the South in the remaining goods. A technical improvement in the South or a uniform technical improvement will make both countries better-off as long as the price of Southern goods falls. Likewise, a technical improvement in the North will lead to a welfare improvement in both countries without altering the pattern of comparative advantage.

Trading Arrangements and Industrial Development

How do different trading arrangements influence the industrialization process of developing countries? Can preferential trading arrangements (PTAs) be superior to multilateral liberalization, or at least an alternative when multilateral liberalization proceeds slowly? If so, what form should the PTAs take? Are developing countries better advised to seek PTAs with industrial countries or among themselves? Traditional analysis of these issues has been based on the idea of trade creation and trade diversion. The problem with this analysis is that it starts from assuming a pattern of comparative advantage of newly industrialized countries. The experience of these countries suggests the need for an analysis in which the pattern of comparative advantage is not set in stone but is potentially flexible, and in which less developed countries can develop and converge in both income and economic structure to industrial economies. The authors outline an alternative approach for analyzing the role of trade in promoting industrial development. There are few fundamental differences between countries that generate immutable patterns of comparative advantage. Instead the pattern of trade and development in the world economy is determined mainly by history. Cumulative causation has created concentrations of industrial activity in particular locations (industrial countries) and left other areas more dependent on primary activities. Economic development can be thought of as the spread of these concentrations from country to country. Different trading arrangements may have a major impact on this development process. By changing the attractiveness of countries as a base for manufacturing production they can potentially trigger or postpone industrial development. This approach explains why firms are reluctant to move to economies that have lower wages and labor costs, and shows how trade liberalization can change the incentives to become established in developing countries. It provides a mechanism through which import liberalization can have a powerful effect in promoting industrialization. And it suggests that import liberalization may create or amplify differences between liberalizing countries with the possible political tensions this may create. While these features are consistent with the world economy, they fall short of providing convincing empirical support for the approach. Using the approach, the authors derive number of conclusions about the effects of trade liberalization. First, that unilaterally liberalizing imports of manufactures can promote development of the local manufacturing industry. The mechanism is forward linkages from imported intermediates, but this may be interpreted as part of a wider package of linkages coming from these imports. Second, the gains from liberalization through PTA membership are likely to exceed those obtained from unilateral action. South-South PTAs will be sensitive to the market size of member states, and North-South PTAs seem to offer better prospects for participating Southern economies, if not for North and excluded countries. Third, the effects of particular schemes (such as the division of benefits between Southern economies) will depend on the characteristics of the countries and cross-country differences in these characteristics.

Comparative advantage and distant water fishing fleets: The Australian east coast tuna longline fishery

A coastal state benefits from importing the services of a distant water fishing nation (DWFN) fleet if the DWFN has a comparative advantage in exploiting the fishery, based on factors such as market access, costs or technology. The paper compares the activities of the Australian and Japanese vessels in the east coast tuna longline fishery and finds the Australian vessels receive higher prices, have higher costs and use a different technology from the Japanese fleet. These differences suggest a pattern of comparative advantage which can lead to Australia benefitting from importing the services of the Japanese fleet.

Credit constraints and human capital accumulation in the open economy

This paper analyzes the implications of capital market imperfections for understanding the causes and consequences of international trade. Credit constraints in financing education and exogenous income distribution affect patterns of comparative advantage and are crucial in determining the impact of international trade. Unlike the standard results in the trade literature, in the model here, trade liberalization in a skill-scarce country leads to higher investments in human capital.

Growth, Specialization, and Trade Liberalization

This paper examines a two-way interaction between trade liberalization and economic growth. Through increasing returns to specialization, international trade can increase world growth rates. But growth alters patterns of comparative advantage, changing the incentives to levy tariffs in a dynamic tariff game between governments. Two types of equilibria are analyzed. In a Tariff War equilibrium, growth rates are low, tariffs are high and rising, the ratio of exports to income, the trade ratio, is low, and falls to zero asymptotically. In a Trade Liberalization equilibrium, growth rates are high, tariffs are low and falling, the trade ratio is higher, and is increasing over time.

Growth, Specialization, and Trade Liberalization

This paper examines a two-way interaction between trade liberalization and economic growth. Through dynamic increasing returns to specialization, international trade can increase world growth rates. But growth, through specialization , alters patterns of comparative advantage, changing the incentives to levy tariffs in a dynamic tariff game between governments. Two types of equilibria are analyzed. In one, average growth rates are low, tariffs are high and rising, the ratio of exports to income (the trade ratio) is low, and falls to zero asymptotically. In the other, growth rates are high, tariffs are low and falling, the trade ratio is higher, and rises over time. The conditions under which each type of equilibrium will be observed are investigated.

Alliances and the pattern of comparative advantages: a sectoral analysis

The pattern of sectoral comparative advantages between the EC, US and Japan is linked to the sectoral distribution of Triad alliances to disentangle different motives and problems of alliances. In addition the impact of comparative advantages on partner selection is examined. It is found, among others, that, contrary to the US and Japan, the EC takes a more defensive stance in industries where it holds a comparative advantage, but it is more actively engaged in alliances in industries where it lacks a comparative advantage. But these weak EC partners are least likely to team up with a strong partner, as compared to US and Japanese companies.

日本の製造業の比較優位変化とその要因分析

1960年から90年の間に，日本の産業の比較慢位とそれを規定する要因は大きく変化した。本稿では，詳細な産業別データにもとづいて比較優位の変化を観察したうえで，その決定図を統計的手法を用いて分析した。このとき産業の比較優位の決定国として，伝統的な要素集約度だけでなく，産業組織的要素や産業政策の効果についても検討をおこなった。その結果，比較優位を持つ産業は，労働集約的なものから物的資本集約的，人的資本集約的，技術集約的なものへと変化してきたこと，下諸制度が製造業の比較優位の向上に貢献してきたこと，日本におけるある時期の産業政策は産業の比較優位の決定に影響を与えたこと，などが確認された。

International Trade in Carbon Emission Rights and Basic Materials: General Equilibrium Calculations for 2020

Restrictions on CO, emissions affect international trade and the pattern of comparative advantage. This paper, based on calculations with a static general equilibrium model, suggests that international trade in carbon rights is a substitute for trade in energy-intensive goods, and thus international trading in carbon rights reduces sectoral effects of emission reductions. In our model, we surprisingly find that free riding by non-signatory countries may not render unilateral action ineffective. If the OECD unilaterally cuts global emissions by 5 per cent from 1990 levels by the year 2020, emissions by non-OECD regions increase but offset less than 15 per cent of this cutback. Moreover, carbon taxes depress international oil prices and create incentives for increased tradc in natural gas.

Analysis of R&D failure

Abstract The basic issue of this paper is to investigate whether the relationship between market determinateness and performance found in the Israeli biomedical electronics industry reflects a particular pattern of comparative advantage or whether inadequate program execution was responsible for a part or all of the failures. For this purpose we build a tentative framework for analysing failure. This framework is based on a distinction between what we term causes of failure (inappropriate behavior or uncertainty) and their manifestation at the time of program suspension. Inappropriate behavior (and uncertainty) appears at three levels: overall firm level, choice of program, and program execution. Firm variables (size, market involvement, and management orientation) play a role both in determining inappropriate firm behavior and in explaining it. The results point to the predominance of inappropriate program selection (i.e. lack of comparative advantage) in explaining failure, despite the prevalence of faulty program execution. Inappropriate program selection is the result of insufficient exploratory search coupled with a management orientation which underestimates the importance of marketing aspects in the innovation of process. It also leads to inappropriate execution of innovation programs.

The evolution of knowledge in the labor force during industrial structuring in Japan

This paper tracks the progression of knowledge levels in the labor force between 1975 and 1985 in the Japanese economy as a whole and it's fifty three component sectors, utilizing a measure of knowledge which reflects the worker's educational level and vocational preparation, verbal, numerical and analytical capability and his/her ability to synthesize inferences and knowledge. The links between the worker's knowledge levels and the economic fortunes of industries are inferred for various sectors particularly those with divergent patterns of comparative advantage. Changes in the levels of knowledge embodied in all workers in the different industries are decomposed into their sources: technical change, changes in the structure of final demand, changes in labor productivity, and the changes in the component structure of occupation. The analysis of these sources highlights the facilitating role of human capital changes in Japan in an era of considerable structural change.

A Takayama–Judge activity model applied to the analysis of allocation and trade in Sweden

The purpose of this article is to formulate a numerical general equilibrium model of the Swedish economy, and to use the model for a quantitative evaluation of the pattern of comparative advantages. The model is essentially a Leontief type of input-output model, extended with linear demand functions for final commodities, foreign trade activities and capacity and resource constraints. Due to the linearity the model can easily be reformulated and solved as a quadratic programming model. The evaluation of the pattern of comparative advantages of the Swedish economy is carried out as an analysis of the choice between inport and domestic production in a temporary equilibrium framework with exogenously given world market prices, exports and domestic production capacities.

The narrow moving band, the Dutch disease, and the competitive consequences of Mrs. Thatcher: Notes on trade in the presence of dynamic scale economies

This paper presents a model of trade in which comparative advantage, instead of being determined by underlying attributes of countries, evolves over time through learning-by-doing. In this model, arbitrary patterns of specialization, once established, tend to become entrenched over time. The model sheds light on three widely held views that do not make sense in more conventional models. First is the view that temporary protection of selected sectors can permanently alter the pattern of comparative advantage in the protecting country's favor. Second is the view that seemingly favorable developments, such as the discovery of exportable natural resources, may lead to a permanent loss of other sectors and reduce welfare in the long run. Third is the possibility that a temporary overvaluation of a currency due to tight money can lead to a permanent loss of competitiveness in some sectors.

VEMOD: A Ricardo-Heckscher-Ohlin-Jones Model of World Trade

The main features of the world trade model VEMOD are presented. VEMOD is a six-region, general equilibrium model of the world economy, developed to explain and predict the pattern of comparative advantage across main world regions. It is based on mainstream trade theory. It differs from other CGE models of world trade in two ways. It does not apply the Armington assumption that goods from different regions are qualitatively different, and it defines production sector s in terms of factor proportions rather than output characteristics. The authors discuss the modeling approach, describe the structure of the model, and give examples of insights from model experiments. Coau thors are Victor Norman, Thomas Rutherford, and Tor Wergeland. Copyright 1987 by The editors of the Scandinavian Journal of Economics.