Principle Of Comparative Advantage Research Articles

Costs of certified emission reductions under the Clean Development Mechanism of the Kyoto Protocol

This paper examines the cost structure of certified emission reductions (CERs) through various types of projects under the Clean Development Mechanism (CDM) of the Kyoto Protocol. Using the CDM project data, the costs of CERs and their variation across technology and over time and space are estimated by applying alternative functional forms and specifications. Results show that the average cost of CERs decreases with the project scale and duration, scale and duration effects significantly vary across project types, and there is an upward trend in costs. The results also show that the distribution of the projects in the CDM portfolio or a given location does not strictly follow the relative cost structure, nor does the distribution of the CDM projects in different host countries follow the principle of comparative advantage. More than 84% of the CDM portfolio consists of various energy projects with substantially higher costs of CERs than afforestation and reforestation, industrial and landfill gas reduction, and methane avoidance projects, which are only 12% of all projects. While per unit cost of abatement plays an important role in the bottom-up and top-down models to evaluate emission reduction potential and analyze policy alternatives, the findings contradict the presumption of such models that project investors seek out low-cost opportunities. At the aggregate level, the cost of CER by the projects in Asia and Europe is similar but higher than those hosted in Africa, Americas, and Oceania. Yet more than 83% of the projects in the CDM portfolio are located in Asia; more than 69% of the projects are in China and India alone. China appears to have a comparative advantage (i.e., lowest opportunity cost) in energy efficiency projects, while India has a comparative advantage in hydro power projects and Brazil has a comparative advantage in wind power projects. In contrast, energy efficiency category accounts for only 8% of the CDM projects in China, hydro power accounts for 12% of the projects in India, and wind power accounts for 18% of the projects in Brazil. The results provide a basis for evaluating the incentives that the mechanism offers as a cost effective policy instrument that balances greenhouse gas mitigation across sectors and regions, while fulfilling the objective of the convention.

Were the original Canada–US Free Trade Agreement (CUSFTA) and the North American Free Trade Agreement (NAFTA) significant policy turning points? Understanding the evolution of macroeconomic policy from the pre- to the post-NAFTA era in North America

This article reviewsthe Keynesian/heterodox critique of free trade and the principle of comparative advantage, and offers some prima facie empirical evidence for North America that contradicts the basic predictions of the traditional free trade model. The evidence supports, instead, the view that trade liberalization actually promoted a perverse neo-mercantilist export-led growth (ELG) strategy that generates deflationary pressures not so much because NAFTA promoted greater international competition, but primarily because ELG relied on the macroeconomic role of the state in its implementing of restrictive fiscal and monetary policies to keep a lid on wage growth. The article argues that there is need for an alternative NAFTA that should promote the free circulation of goods, and that an institutional structure should be put in place that firmly ties each national government to an explicit full-employment commitment.

A microbial model of economic trading and comparative advantage.

The economic theory of comparative advantage postulates that beneficial trading relationships can be arrived at by two self-interested entities producing the same goods as long as they have opposing relative efficiencies in producing those goods. The theory predicts that upon entering trade, in order to maximize consumption both entities will specialize in producing the good they can produce at higher efficiency, that the weaker entity will specialize more completely than the stronger entity, and that both will be able to consume more goods as a result of trade than either would be able to alone. We extend this theory to the realm of unicellular organisms by developing mathematical models of genetic circuits that allow trading of a common good (specifically, signaling molecules) required for growth in bacteria in order to demonstrate comparative advantage interactions. In Conception 1, the experimenter controls production rates via exogenous inducers, allowing exploration of the parameter space of specialization. In Conception 2, the circuits self-regulate via feedback mechanisms. Our models indicate that these genetic circuits can demonstrate comparative advantage, and that cooperation in such a manner is particularly favored under stringent external conditions and when the cost of production is not overly high. Further work could involve implementing the models in living bacteria and searching for naturally occurring cooperative relationships between bacteria that conform to the principles of comparative advantage.

Agglomeration and regional growth policy: externalities versus comparative advantages

This paper explores the existence of different types of static and dynamic externalities and shows the relationship between externalities, interregional trade, and cluster policy. By guiding policy in choosing the most appropriate strategy for facing some frequent dilemmas, this paper has clear implications in regional development policy and adds to the existent literature in three ways. First, it contributes to a better characterization of dynamic externalities by extending the “advantages of backwardness” approach, formerly developed to explain the catching-up of national economies, to the regional context. Second, the paper presents a new model that relates static and dynamic externalities to the clustering mode of production in the regional context. Third, the paper contributes to give a more accurate theoretic basis to the regional cluster policy and to help policy-makers in choosing the right policy for increasing the well-being of depressed regions. The major conclusion is that policy must pursue a combination of the comparative advantage principle with one type of dynamic externalities uncovered in this paper: the “related variety benefits” of agglomeration.

The Principle of Co-Creative Comparative Advantage

The Ricardian principle of comparative advantage has long been at the foundation of a wide range of economic models. In the new Internetworked economy where co-creational experiences of value is rapidly gaining momentum, the vision of this principle has weakened. We provide a framework to align economic thinking on the principle of comparative advantage with co-creational value creation embedded at the core. We show how patterns of specialization and the resultant gains from trade, within or across borders, must be sensitive to value gained through co-creational experiences. In particular, an individual’s co-creational experience of value is at the foundation of what we posit as the principle of comparative co-creationaladvantage.

Rethinking Trade and Development: A Developmentalist Perspective1

In one of the longest lasting debates in economics, mainstream economists still basically rest their position regarding trade and development policies on the static principle of comparative advantage, while relying on fancier econometric techniques to find empirical support. This paper draws attention to dynamic considerations, first emphasizing Smith's observation that there was more scope for division of labor in manufactures than in primary production. Prebisch noted that primary products generally have lower income elasticity of demand than manufactures. In a global context where some countries undertook industrial development ahead of others, these would generate the trade patterns that Ricardo predicted. Investment would flow from the industrial center to the periphery to augment primary production as Mill anticipated. Through the dominance of backwash over spread effects, international inequalities would widen à la Mrydal. International dualism, especially in a technological sense, would be aggravated à la Singer. To counter such uneven development, developmentalists such as Hamilton, List, Prebisch, Myrdal, and Singer advocated technological acquisitions and industrial development on the part of the less-developed countries or regions. Contrary to mainstream portrayal they did not simply advocate protectionism. Instead, their policy suggestions were nuanced and sophisticated, and included both non-trade and trade instruments, means of building technological capabilities, and (for those writing after World War II) considerations of how to sensibly direct and regulate the activities of multinational corporations. These policy ideas appear to neatly link up with those drawn from case studies of East Asian development undertaken by some researchers that are outside of the economics mainstream. 1 This paper was presented at an AFIT session at the 52nd Annual Conference of the WSSA in Reno, Nevada, on 16 April 2010.

Agent-Based Modeling as a Tool for Trade and Development Theory

This paper makes use of an agent-based framework to extend traditional models of comparative advantage in international trade, illustrating several cases that make theoretical room for industrial policy and the regulation of trade. Using an agent based implementation of the Hecksher-Ohlin trade model; the paper confirms Samuelson's 2004 result demonstrating that the principle of comparative advantage does not ensure that technological progress in one country benefits its trading partners. It goes on to demonstrate that the presence of increasing returns leads to a situation with multiple equilibria, where free market trading policies can not be relied on to deliver an outcome which is efficient or equitable, with first movers in development enjoying permanent advantage over later developing nations. Finally, the paper examines the impact of relaxation of the Ricardian assumption of capital immobility on the principle of comparative advantage. It finds that the dynamics of factor trade are radically different from the dynamics of trade in goods and that factor mobility converts a regime of comparative advantage into a regime of absolute advantage, thus obviating the reassuring equity results that stem from comparative advantage.

Dairying in the Antipodes: recent past, near prospects

The majority of dairy farmers and processors in Australia and New Zealand are considered world class due to their ability to produce dairy products at a cost that is competitive on the world market without requirement for subsidy. International and domestic forces beyond the farm influence the international competitiveness of Antipodean dairy systems, as much or more than, the within-farm characteristics of the systems. Critical external forces include: world population growth, protein demand from increasingly wealthy developing countries, dairy supply from domestic and international producers, international dairy prices and exchange rate volatility. Within farm, the keys to persistent profitability, business survival, and growth will continue to be management ability and labour skill as well as the relationship between milksolids (milk fat + milk protein) produced per system and total production costs. Domestic forces will include competition for resources such as land, water, quality labour and capital, and public expectation that farms will meet the costs of community environmental and welfare objectives. Public and industry investment in research, development and extension in innovations that increase productivity is essential if dairying is to remain competitive. The operation of the comparative advantage principle determines which industries thrive, or decline, in an economy. New Zealand dairying has a strong comparative advantage over alternative pastoral industries which will continue. In Australia, the comparative advantage of dairy farming over alternative activities is less clear-cut. History shows that the best farmers and processors handle risks such as market and climate volatility and other challenges better than others, and their prospects are positive. However, world class performers in the future dairy industry will certainly not be all, or even the majority, of the current population of dairy farmers.

Modelling Trade, Investment, Growth and Liberalisation: Case Study of Pakistan

The role of trade in economic development as an engine of economic growth has been at the centre of hot policy debates over the past four decades. History supports the success of import liberalisation policy in the United States of America (USA) in the 1940s, Japan in 1960s and the exports promotion achievements of Asian Tigers in the 1970s and 1980s [Yen (2009)].1 There is no doubt that increased movement of goods and services across international borders over the past few decades has helped developing countries to achieve faster and sustainable growth. Many researchers argued that free trade has a key ingredient in facilitating transfer of technology from developed to developing countries [Heokman and Javorcik (2006) and Harding and Javorcik (2012)]. Theoretical literature suggest that trade liberalisation enhances economic growth and development through the specialisation and technological developments. The theoretical link between international trade and economic development can be traced back to the earlier writings of Classical Economists (Adam Smith and David Ricardo) and Neoclassical Economists (Heckscher and Ohlin) in the early part of nineteenth century. The Classical Economists hypothesised that nations gain from trade, and World production would grow when trading nations specialise according to the principles of comparative advantage. On the other hand, the Neo-classical Economists argued that countries will tend to specialise in those products that use abundant resources intensively in the production process. As a consequence, factors prices will tend to equalise across trading nations if production technologies remain identical throughout the world (Stolper-Samuelson approach).

Assessment of water resource allocation policies based on the principle of comparative advantage and a policy analysis matrix: A case study of Hamedan-Bahar Plain

Comparative advantages of agricultural products were evaluated using the policy analysis matrix (PAM), to determine the combination of products according to market and shadow prices. Based on these evaluations, maximum amount for import virtual water was identified. Results showed that optimum cropping pattern in term of maximizing social benefits not only had the highest amount of benefits - 29160 USD but it also required much less water amount consumption in comparison with the two other cropping patterns. Key words: Virtual water, policy analysis matrix (PAM), comparative advantage, social benefit, gross margin.

David Ricardo, Robert Torrens a autorstvo princípu komparatívnych výhod

The authorship of the principle of comparative advantage is generally credited to David Ricardo. Recent papers published in scientific journals have cast doubt on this axiom and have debated roles of Robert Torrens, James Mill and John Stuart Mill in its history. We show many of the arguments used in this debate are unscientific and unverifiable. After conducting an analysis of the history of development of the principle we define the difference between minimum satisfactory and complex formulation of the principle. We come to the conclusion that the first satisfactory explanation of comparative advantage was offered by Robert Torrens.

Terms of Trade, Competitive Advantage, and Trade Patterns

This paper investigates the competitive determination of the pattern of trade, seen as a choice of technique problem within a two-country, two-commodity, circulating capital model. It seeks to re-examine the analytical premises of the principle of comparative advantage. The establishment of competitive advantage is addressed in a Sraffian framework that allows the integration of the choice of technique problem to issues of growth and distribution. The focus is on exploring the validity of this principle when capital is internationally immobile—the context in which the principle was first postulated. Capital immobility imparts a degree freedom to the model. Closing the model and establishing a trade outcome on the basis of the principle of comparative advantage depends on the specification of appropriate boundary conditions. These boundary conditions boil down to some specification of relative scales of the trading partners and the scope for complete specialization and mutually beneficial gains from trade is circumscribed.

Stage of development and licensing university inventions

The paper analyses the correlation between the licensing activity by start-ups and established firms and the inventions’ stages of development. Using a new variable to characterise the inventions, stage of development, the paper also study the correlation between this variable and two other outcomes: patenting activity and royalty generation. The decision of firms to license at various stages of development could be affected by comparative advantage principle or by asymmetry of information. The main results show that the relative likelihood of licensing by start-ups to licensing by established firms is lower for more advanced stage inventions relative to earlier stage inventions. The results regarding the change in relative likelihood ratio across stages of development also hold when other outcome variables, like patenting and royalty creation are used.

A Comment on Professor Robert Wade’s Rebuttal

I thank Professor Wade for his response to my comments. There is much agreement between us on the importance for development economists to rethink industrial policy, and to come up with a framework that adequately describes the distribution of roles between states and markets in well-functioning economies. His elegant conceptualization of the strategy used by East Asian economies to address market failures is an important component of today’s knowledge of the political economy of development. His discussion of the key issues associated with the risk of government failures deserves a few clarifications on my part. Wade observes that latecomers to the industrial process often targeted industries in countries that were much more than twice as rich as they themselves were at the time, and that there is more vertical differentiation in the production of any good, which creates niches far beyond the latent comparative advantage. Besides the fact that industrial policy has also sometimes failed in East Asian countries and there have been many cases of costly targeting mistakes, it may be useful to note that the emergence of production networks and vertical differentiation makes it possible indeed for a developing country to export some technology-intensive products. But a decomposition of the value chain tends to reveal that in successful ventures the value-added part of production in the developing country is still consistent with its comparative advantage. An illustration of this phenomenon is the fact that most information and communication technology (ICT) products sold in the US are imported from China. But what China actually does is mainly the assemblage of imported capital ⁄ technology-intensive components produced in Japan, Korea and Taiwan, China. It does not yet produce such sophisticated components, which are still beyond the reach of its comparative advantage. It is important to remember that an industry can be divided into different segments. Each segment involves a set of production activities with specific capital ⁄ technology intensities. For a developing country, the decision to enter any particular segment should be determined by the comparative advantage principle (see Wang et al., 2010). Wade also raises the wage–productivity gap issues and suggests that the World Bank should devote more attention to equity. I agree. Most economists view the increase in productivity as a necessary condition for growth, neglecting the question of whether growth is inclusive and sustainable. The World Bank has done substantial work in recent years on that very topic. Greater emphasis is now given to the quality of the growth process, notably whether it can deliver inclusive and sustainable development. The impacts of policies and economic changes on the poorest, once neglected, are now given high priority in research. Inequality – especially inequality of opportunity – is now seen as an important problem constraining growth and poverty reduction (see World Bank, 2010; see also World Bank, 2006). Public policy should indeed tackle the role that inequality plays in the gap between productivity growth and compensation, wages and incomes. A developing country engaged in the catching-up process can achieve growth with equity by following its comparative advantage. The adoption of a comparative advantagefollowing strategy can improve income distribution in the dynamic development process. When an economy’s development is in its early stage – with relatively abundant labor and scarce capital – enterprises will initially enter labor-intensive industries and adopt technologies that require large amounts of labor inputs. This creates as many employment opportunities as possible and enables a rapid migration of labor from low value-added traditional sectors to higher value-added modern manufacturing and service sectors. With the upgrading in the endowment structure, labor gradually becomes scarce while capital becomes abundant. As a result, the relative cost of labor increases while the relative cost of capital decreases. Because capital income is the major source of *Wade, R. (2011) ‘Why Justin Lin’s Door-Opening Argument Matters for the Discipline of Development Studies’, Global Policy, Vol. 2, No. 1, pp. 115–116. DOI: 10.1111/j.1758-5899.2010.00049.x Global Policy Volume 2 . Issue 2 . May 2011

Oil Speculation: The Impact On Prices, Inflation, Interest Rates And The Economy

<p class="MsoNormal" style="text-align: justify; margin: 0in 0.5in 0pt;"><span style="color: black; font-size: 10pt; mso-themecolor: text1;"><span style="font-family: Times New Roman;">The vector autoregression process is used to estimate a reformulated model of the equation of exchange developed from the quantity theory of money.<span style="mso-spacerun: yes;">  </span>In describing the effect of oil speculation, represented by spot oil price, on general price level and the overall economy, new variables are incorporated to take into account current global economic conditions and realities.<span style="mso-spacerun: yes;">  </span>A variable, which was introduced in Ajuzie et al, 2008 paper, import of goods and services, is included and impulse-response function is used to forecast future economy and determine policy scenarios.<span style="mso-spacerun: yes;">  </span>Results show that an increase in spot oil price last period has a highly statistically significant positive effect on CPI inflation.<span style="mso-spacerun: yes;">  </span>This effect is strong enough to eliminate the negative significant impact of import of goods and services on CPI inflation found in the paper of May 2008.<span style="mso-spacerun: yes;">  </span>Based on this finding, it is highly recommended that oil speculation should be discouraged and trade relations be bases purely on the principles of comparative advantage.<span style="mso-spacerun: yes;">  </span><span style="mso-spacerun: yes;">          </span></span></span></p>

The Chinese Economy after Thirty Years of Reform: Perspectives from the Agricultural Sector

The contours of China's rural economy and society have changed dramatically during the last 30 years. Urbanization and migration have made China less of a rural society than it was in 1978, while agriculture is no longer the principal driver of rural, let alone national, economic growth. Nevertheless, the registered rural population still numbers well over 700 million, and the dominant role of agriculture as a source of employment persists to this day. In its efforts to promote sustainable economic and social development, the Chinese government faces some of its most pressing challenges in the countryside. Its ability to fulfil major goals – those relating to employment, food security, poverty reduction, welfare enhancement and environmental sustainability – therefore depends critically on the effectiveness of its rural policies.
 Rapid growth and marked changes in the structure of farm production since 1978 have been underpinned by major improvements in both land and labour productivity. In particular, the response of farmers to changes in levels and patterns of food consumption associated with growing affluence has been quite impressive. Despite short-term fluctuations, trend growth of domestic grain above all, cereal output has been positive, as a result of which China has succeeded in fulfilling its target of maintaining 'basic' food self-sufficiency. The government's adherence to a strategy of food self-sufficiency that runs counter to the principle of comparative advantage has also minimized China's involvement in international cereal markets.
 Meanwhile, property rights remain a core issue in the farm sector. From this perspective, a recent initiative, designed to facilitate the emergence of new kinds of land transfers that would pave the way for a process of land consolidation, appears to represent a significant new development – albeit one that carries dangers as well as opportunities.

The resource‐based view revisited: Comparative firm advantage, willingness‐based isolating mechanisms and competitive heterogeneity

Abstract We take a step beyond the resource‐based view that resource characteristics (i.e., valuable, rare, inimitable and non‐substitutable) are the sole basis for isolating mechanisms. Instead, we apply Ricardo's principle of Comparative Advantage in a two‐firm, two‐product scenario to show how additional isolating mechanisms can result from economic incentives that provide managers with distinct strategic choices. Specifically, our analysis indicates that managers' strategic decisions based on comparative firm advantage (CFA) affect their willingness to imitate competitors, even when their firms are fully capable of such imitation. This willingness, in turn, helps to determine the direction of firm expansion. We discuss how Ricardo's CFA logic can provide specific guidance for managers regarding effective firm strategies in specific comparative advantage situations by factoring in both internal efficiencies and competitive pressures when designing and implementing rent‐seeking strategies.

Who benefits most from college? Evidence for negative selection in heterogeneous economic returns to higher education.

We consider how the economic return to a college education varies across members of the U.S. population. Based on principles of comparative advantage, positive selection is commonly presumed, i.e., individuals who are most likely to select into college benefit most from college. Net of observed economic and non-economic factors influencing college attendance, we conjecture that individuals who are least likely to obtain a college education benefit most from college. We call this theory the negative selection hypothesis. To adjudicate between the two hypotheses, we study the effects of completing college on earnings by propensity score strata using an innovative hierarchical linear model with data from the National Longitudinal Survey of Youth 1979 and the Wisconsin Longitudinal Study. For both data sources, for men and for women, and for every observed stage of the life course, we find evidence suggesting negative selection. Results from auxiliary analyses lend further support to the negative selection interpretation of the results.

Heterogeneity, comparative advantage, and return to education: The case of Taiwan

By considering heterogeneity in abilities and self-selection in educational choice, this paper adopts the heterogeneous human capital model to estimate rate of return to university education using data from the 1990 and 2000 Taiwan's Manpower Utilization Surveys. The Taiwan empirical study shows that significant heterogeneous return to education does exist, and that the educational choice was made according to the principle of comparative advantage. The estimated rates of return for attaining university were 19% and 15%, much higher than the average rate of return of 11.55 and 6.6%, for 1990 and 2000, respectively. The declining trend of return to university education may have been caused by the rapid expansion of the number of colleges and universities and the increasing supply of college graduates in the 1990s.

Empirical Analysis of Technology Diffusion in the Biotechnology Sector in San Diego - Stage of Development and Licensing University Inventions by Start-Up and Established Firms

In this paper I analyze the correlation between the licensing activity by start-ups and established firms (mainly in the biotech sector) and the inventions’ stages of development. Using data from the San Diego region on licensing new technologies and a new variable to characterize the inventions, stage of development. I also study the correlation between this variable and two other outcomes: patenting activity and royalty generation. The decision of firms to license at various stages of development could be affected by comparative advantage principle or by asymmetry of information.The main results show that the established firms are more likely to license more advanced stage inventions, while start-up firms are more likely to license embryonic and early stage inventions. The results regarding the likelihood of royalty generations by start up and established firms across stages of development also follow a similar pattern. The findings could further the understanding of how technology diffusion process takes place in the biotechnology sector. In addition it has implication with regard to the process of firm creation process and management.