Source Of Comparative Advantage Research Articles

Exploring the nexus between exports’ economic complexity and institutional quality: insights from Italian provinces

ABSTRACT The present research aims to investigate the determinants of economic development and productivity by proposing an empirical analysis of the economic effects of institutional quality on the economic complexity of export at the intra-national level, focusing on 103 Italian provinces from 2004 to 2016. Using the System Generalised Method of Moments (System-GMM) estimator, the study assesses the influence of various institutional dimensions on provincial economic complexity, as measured by the Economic Complexity Index (ECI). The findings indicate that institutional quality, particularly rule of law, regulatory quality, and voice and accountability, significantly enhances economic complexity. Better formal and informal institutions such as completeness of contracts, social cohesion, contract enforcement, by reducing transaction costs and uncertainty, and by favouring knowledge dissemination and security of investments, are source of comparative advantage in complex industries that lead to diversified and sophisticated production, fostering economic growth and innovation. Moreover, the study emphasises the importance of related activities, which interact with institutions to support complex and innovative export-related activities through knowledge spillovers and related diversification. The analysis also highlights the pivotal role of human capital, social capital, and innovation, which should remain focal points for policymakers.

Market Orientation as a Comparative Advantage Tool: Ankara Province Research Example

Within the scope of the study, the Comparative Advantage Theory of Competition,theResource Advantage Theory,was explained and compared with the Neoclassical Perfect Competition Theory, which was criticized for not being applicable in today's economic conditions. The theory has been examined at the business level. The basis of the theory is that the solid andinimitable resources of the business give the business a competitive advantage in the market. To emphasize resource superiority, market orientation, a competitive tool, was used to support the theory statistically. Two hundred twenty-onebusinesses operating in Ankara with over twenty employees were selected as the research sample. The effect of market orientation on superior financial performance was analyzed by performing multiple linear regression analyses on the obtained data. As a result of the research, it was confirmed that market orientation is a source of comparative advantage, and the theory was statistically supported.

English

This paper examines the competitiveness of The Gambia agri-food exports from 2012 to 2021 utilizing the revealed comparative advantage index, the Kaplan-Meier survival function, and Cox regression model. The results indicate that thirteen of the twenty-four products have comparative advantages in the global market, while seven of the twenty-four products have comparative advantages in the regional market. In terms of product structure, raw materials are sources of comparative advantage in global trade. While processed products offer comparative advantages in regional trade. In general, global agri-food trade has comparative advantages over regional agri-food trade. However, the duration test indicates that competitive positions are generally declining. Survival chances fell from 96% at the start of the period to 13% at the end, indicating that The Gambia faces fierce competition in global and regional agri-food trade. The hazard regression analysis reveals that inflation and good governance significantly reduce the hazard rate and hence improve the duration of agro-food exports. Key words: The Gambia, cox regression, agro-food trade, comparative advantage, competitiveness.

Catholic Universities in an Increasingly Competitive Environment

Pope Francis’ vision for a global compact on education, including the role that Catholic universities should play, is in sharp contrast to the vision that dominates the higher education sector: that of producing graduates for gainful employment. Can Catholic colleges and universities rise to the challenge? This article provides a partial answer to that question by first considering four trends affecting higher education globally: (i) the impact of Covid; (ii) the technologization of higher education; (iii) the promise of employability; and (iv) the great unbundling towards micro-credentials. Thereafter, using data for the United States, the article provides a brief assessment of whether Catholic universities may be losing ground, while nevertheless keeping some sources of comparative advantage. The analysis remains explorative and tentative. What seems clear is that there is a lot of heterogeneity between institutions, with some struggling and others finding ways to maintain their comparative advantages.

Financial integration and the comparative advantage of exports

We use a cross-country cross-industry unbalanced panel dataset to examine whether countries with a higher degree of international financial integration exhibit a greater comparative advantage in the exports of industries that rely more on external financing. Our results indicate that financial integration can be a source of comparative advantage, especially for industries relying more on external finance. However, the benefits of financial integration also depend on a country’s quality of economic and legal institutions. The pros and cons of international financial integration are still being debated in the literature. Our study adds empirical evidence to the beneficial effects of financial integration on real economic activity.

Multidimensional Financial Development, Trade Liberalization, and Productivity Growth

Only recently have researchers turned their attention to questions of financial development understood as a multidimensional concept: a combination of depth, access, efficiency, and diversity of financial providers. Using a broad-based index of financial development, we document how the different aspects of financial development affect the relationship between trade and productivity growth across countries. We find that for richer countries, financial depth and access strengthen the effects of trade openness on growth, while for poorer countries, only the degree of efficiency matters. Our results are robust to changes in sample, trade measures, and estimation strategies, and suggest the source of comparative advantage from financial development is different for countries with different levels of income.

Comparative Advantage in (Non-)Routine Production

We illustrate a new source of comparative advantage that is generated by countries’ different ability to adjust to technological change. Our model introduces substitution of workers in codifiable (routine) tasks with more efficient machines, a process extensively documented in the labor literature, into a canonical 2 × 2 × 2 Heckscher-Ohlin model. Our key hypothesis is that labor reallocation across tasks is subject to frictions, the importance of which varies by country. The arrival of capital-augmenting innovations triggers the movement of workers out of routine tasks, and countries with low labor market frictions become relatively abundant in non-routine labor. In the new equilibrium, more flexible countries specialize in producing goods that use non-routine labor more intensively. We document empirically that the ranking of countries with respect to the routine intensity of their exports is strongly related to labor market institutions and to cultural norms that influence adjustment to technological change, such as risk aversion or long-term orientation. The explanatory power of this mechanism for trade flows is especially strong for intra-EU trade.

Inflation as a Source of Comparative Advantage

Inflation as a Source of Comparative Advantage

Institutional change in the global economy: How trade reform can be detrimental to welfare

This study develops a theoretical model of trade with heterogeneous firms and imperfect contracting institutions to examine the impact of trade liberalization on the quality of economic institutions. The model has three main features: (1) institutions are a source of comparative advantage, (2) weak institutions benefit some firms in the open economy, and (3) those firms lobby for sup-optimal institutions in a political game. Greater trade openness increases the distributional effect of institutions and firms' incentive to engage in political lobbying. The political and economic power of firms is linked to the country's comparative advantage. Trade reform is most likely detrimental to institutions in countries specializing in goods requiring bad institutions. The unintended consequences of trade reform on institutions have important implications for the gains from trade and welfare for developing countries in the global economy.

Quality of transport infrastructure and logistics as source of comparative advantage

Building on the well-established empirical findings on the importance of transport infrastructure and logistics for trade, this paper empirically investigates whether the quality of transport infrastructure and logistics is a source of comparative advantage in industries for which logistics services are important. Transport infrastructure and logistics are important inputs in the supplying of goods abroad and in the sourcing of intermediates. To account for the emergence and proliferation of Global Value Chains (GVCs) that have significantly changed the way of organizing production and distribution of goods, we measure export performance by value added in exports rather than gross exports used in the empirical studies on sources of comparative advantage. Using exporter-importer-year, importer-industry-year and exporter-industry fixed effects, we find that a country's ability to provide high-quality transport infrastructure and logistics is a source of comparative advantage in the logistics intensive industries. The results are robust to an alternative measure of transport infrastructure quality and a number of alternative specifications. Even with changes in the sample of countries, the quality of transport infrastructure and logistics continues to be an important determinant of comparative advantage. These findings suggest that transport policies to improve the quality of transport infrastructure and logistics contribute to acquiring comparative advantage.

Biased Information Transmission in Investor Social Networks: Evidence from Professional Traders

This research examines how the positive or negative valence of proprietary information affects both the likelihood that people diffuse this information through their social networks and the likelihood that recipients’ access to this information provides them with a source of comparative advantage. Using a unique dataset of over 2 million stock trades and associated profits and losses, and 1 million instant messages exchanged between professional day traders at a U.S. hedge fund, we show that day traders are more likely to talk about their gains than their losses with their close contacts, suggesting that positive information is more likely to be shared among one’s close network of strong ties. However, by examining the subsequent behaviors of message recipients, we find that recipients tend to discount the value of positive, gains related information, being both more likely to pass on and profit from negative information related to trading losses, particularly from their strong ties. Our results suggest that although individuals are more likely to share positive information with their contacts, message recipients appear to account for the asymmetry in their subsequent communications and decision-making.

Lexicographic biases in international trade

The names of traders should not matter if information is symmetric across traders. By examining export data from Chinese customs, we find persistent lexicographic biases in firm-level export records. Firms whose names are lexicographically earlier in the Chinese-character rank export more to countries that have greater language proximities to Chinese, while firms whose names are lexicographically earlier in the English-romanization rank export more to countries that have greater language proximities to English. The lexicographic biases signify linguistic visibility as a source of comparative advantage in international trade.

Sources of Comparative Advantage in Services: Institution vs. Social Capital

서비스 무역은 세계 무역에서 가장 역동적인 모습을 보이고 있다. 세계 전체 무역에서 서비스 무역이 차지하는 비중이 지속적으로 증가하고 있을 뿐만 아니라, 재화의 무역과는 달리 금융 위기 이후 서비스 무역은 빠르게 회복되고 있다. 비교우위의 원천으로서 제도의 중요성을 강조한 연구의 대부분은 재화에 초점을 두고 있는 반면에 서비스의 비교우위에 미치는 영향을 분석한 연구는 많지 않다. 특히 서비스는 무정형성, 비저장성, 생산과 소비의 동시성 등의 특징을 갖고 있기 때문에 재화에 비해 사전 선택의 위험이 상대적으로 더 높고, 글로벌가치사슬에 포함된 기업 간 서비스 거래 또한 계약 파기의 위험이 상존하기 때문에 서비스거래 위험이 재화 거래에 비해 더 높다. 이는 서비스 거래의 이행은 제도만으로 이루어지기 어렵다는 것을 시사한다. 이에 본 연구는 제도의 대안으로서 사회적 자본에 주목하고, 제도와 서비스가 서비스 비교우위의 결정요인인지를 분석하였다. 분석 결과, 제도 보다는 사회적 자본이 서비스 비교우위에 긍정적인 영향을 미친다는 것을 발견하였다.

Contractual frictions and the patterns of trade: The role of generalized trust

Extant studies on the relationship between ‘domestic institutions, comparative advantage, and international specialization’ have primarily focused on formal institutions. This paper contributes to this literature by focusing on domestic informal contracting institutions vis-á-vis generalized trust as a source of comparative advantage. Employing a bilateral industry trade data, the paper finds robust evidence that countries with high generalized trust level export relatively more in industries that are prone to contractual frictions. Results on export margins further suggest that countries with a high generalized trust level enter more markets, ship more products to each destination, and have higher export per product and export intensities in those industries. On the one hand, the results reemphasize the importance of trust for improved economic performance. On the other hand, the results explain why a country endowed with weak formal domestic contracting institutions may still have a comparative cost advantage in contract intensive industries due to having strong domestic informal institutions such as generalized trust.

Who Benefits from Financial Development? The Interaction of Finance and Trade

How does financial friction influence gains from trade? To answer this question, this paper develops a general equilibrium model of international trade with cross-country financial friction heterogeneity, as the source of comparative advantage. Although product markets are competitive, production of firms in finance-dependent sectors of a closed economy is supported by a markup over marginal cost, so that a higher profit prevents firms from strategically defaulting on loans. Trade liberalization reduces the price of the finance-dependent good, which benefits the consumers; however, economic rents of producing finance-dependent goods flow out to the financially less-frictional economy, which is welfare-reducing. In sum, gains/losses from trade is determined by the financing friction severity of the partner country. We test the empirical predictions of the model. In particular, while we show that financial development matters for the growth of finance-dependent industries in open economies, we do not find such an evidence for closed economies.

Comparative Advantage in (Non-)Routine Production

We illustrate a new source of comparative advantage that is generated by countries' different ability to adjust to technological change. Our model introduces substitution of workers in codifiable (routine) tasks with more efficient machines, a process extensively documented in the labor literature, into a canonical 2 x 2 x 2 Heckscher-Ohlin model. Our key hypothesis is that labor reallocation across tasks is subject to frictions, the importance of which varies by country. The arrival of capital-augmenting innovations triggers the movement of workers out of routine tasks, and countries with low labor market frictions become relatively abundant in non-routine labor. In the new equilibrium, more flexible countries specialize in producing goods that use non-routine labor more intensively. We document empirically that the ranking of countries with respect to the routine intensity of their exports is strongly related to labor market institutions and to cultural norms that influence adjustment to technological change, such as risk aversion or long-term orientation. The explanatory power of this mechanism for trade flows is especially strong for intra-EU trade.

A Quantitative Trade Model with Unemployment

I employ search-and-matching to a multi-country and multi-sector Ricardian model with input-output linkages, trade in intermediate goods, and sectoral heterogeneity, in order to quantify the welfare effects from tariff changes. The paper shows that labor market frictions can be a source of comparative advantage in the sense that better labor market conditions contribute to lower cost in production. Labor market frictions play a critical role in determining the probability of exporting goods to trading partners, and interact with bilateral trade share, price, expenditures, etc. Unemployment and changes in unemployment rates due to tariff reductions contribute welfare changes across countries, implying that welfare effects based on quantitative trade models with full-employment are likely to be biased. I confirm the biased welfare effects by revisiting Caliendo and Parro (2015), who conduct an analysis of the welfare effects from the NAFTA from 1993 to 2005. I show that the welfare gap between theirs and mine has a positive correlation with changes in observed unemployment rates across countries. With the constructed model, I further conduct counterfactual exercises by asking what would happen if China’s tariffs remain unchanged from 2006 to 2015. It turns out that there are mild welfare effects to trading partners in the world trading system.

Institutional Quality, Trade Costs and Comparative Advantage

Earlier works derive empirical implications that institutional quality is very influential as a source of comparative advantage in industries requiring relationship-specific investment from the supplier. However, as earlier studies focus on investigating the impact of institution on the efficiency of the producer, only the exporter’s institution is considered. In contrast, we attempt to identify the impacts of the quality of institution, of both exporters and importers, on trade costs, that are different across country-pairs. To check the problem of measuring trade costs, we use two alternative measures of trade costs, i.e. CIF/FOB ratio and the relative measure of trade costs proposed by Novy (2013). Using the Eora global supply chain database covering 187 countries for 11 primary and manufacturing industries and four years, 2000, 2005, 2010 and 2015, we calculate a CIF/FOB ratio and the relative trade costs suggested by Novy (2013) which are used as a proxy variable for trade costs. At the country level, we find that the institutional quality of exporter and importer is negatively associated with trade costs and trade costs increase as disparity between two countries’ institutional quality increases. At the country-industry level, we find that a country-pair with better legal institution has lower trade costs in industries for which a hold-up problem is important. This result is robust to the alternative measure of trade costs suggested by Novy(2013). However, an analysis on the impact of institutional differences on trade costs yields mixed results. Therefore we do not conclude that the similarity of institutional quality between two countries is associated with lower bilateral trade costs.

Sources of Comparative Advantage in Services: Institution vs. Social Capital

Previous studies that have identified the impacts of institutions or cultural traits on comparative advantage focused on goods trade, but not services trade. In contrast to the rapid increase in trade in services, empirical examination on sources of comparative advantage in services trade remains limited. This paper attempts to fill this gap by investigating empirically the impacts of institution as well as social capital on comparative advantage in services trade. Services are exposed to relatively more pre-choice risks than goods, because it is difficult to obtain information on the quality of services before the consumer decides to purchase. In addition, trade in services involved in global value chains possibly takes on the risks of contract breach by other firms along the same value chains. As a result, the transaction risks for trade in services are higher than for trade in goods. Using the World Input Output Database, we estimate the importance of social capital for comparative ad-vantage in services. We find that countries with more social capital tend to specialize in the production of contract-intensive services. We also find that social capital rather than institution matters for comparative advantage in services.

Does contracting institution affect the patterns of industrial specialization in China?

This study evaluates the importance of contracting institutions as a source of comparative advantage across Chinese provinces. We find that industries differ in their reliance on relationship-specific investments. Provinces with better contracting institutions specialize in industries with more intensive relationship-specific investments. We implement two proxies to measure contracting institutions, including efficiency of the legal system and service of contract enforcement. The empirical results of this study indicate that contracting institutions play a role in shaping the patterns of industrial specialization. Specifically, the service of contract enforcement has the first-order effect on the patterns of industrial specialization in China; by contrast, legal jurisdiction plays a modest role.