Traditional Comparative Advantage Research Articles

Analysis of Trade Patterns and Duration: Evidence from Food Industry in the OECD countries

This study conducts Kaplan-Meier survival estimates on food trade patterns among the OECD countries and explores whether different survival conditions exist in different t rade patterns of food sub-industries. By applying the extended Cox proportional hazard model, this study examines the effects of consumption on the survival rate for horizontal intra-industry trade pattern at the SITC four-digits level. Our findings show an important policy implication that the stability of horizontal intra-industry trade on the survival duration is driven by consumption in food industry among the OECD countries. Therefore, we suggest that policies should encourage the support of the horizontal intra-industry trade within the food industry to avoid unstable durations of trade in the global supply chain caused by the severe employment adjustments associated with traditional comparative advantage.

Structural change in a small natural resource intensive economy: Switching between diversification and re-primarization, Uruguay, 1870–2017

ABSTRACT The increasing interest in economic diversification, technological sophistication, and production specialization again places structural change at the centre of the economic development theory. However, efforts to measure structural change from a long-run perspective remain scarce. We aim to fill this gap using a synthetic indicator that represents the dynamics of structural change in the long-run and allows us to identify different development patterns. We calculate this indicator including information on 13 production sectors, for a small natural-resource intensive economy (Uruguay), from 1870 to 2017. Our results adequately describe the development patterns that, according to the literature, characterize Uruguayan economic history. In the long run, economic growth causes structural change; only during the First Globalization period the opposite relation prevailed. The decline of the index – which indicates ‘backward movements’ in the production structure – is found in periods of economic crisis and downturn cycles. This dynamics reflects critical time periods associated with the (relative) primarization of the economy. In other words, near to each crisis episode, the economy reacted by going back to primary production probably due to the search for traditional comparative advantages or because in such negative phases the weakest and most exposed sectors were those other than agriculture.

Prices versus Quantities with Policy Updating

This paper considers how policy updates and trading of regulated quantities over time changes the traditional comparative advantage of prices versus quantities. Quantity regulation that can be traded over time leads firms to set current prices equal to expected future prices. A government seeking to maximize net societal benefits can take advantage of this behavior with a sequence of quantity policy updates that achieves the first best in all periods. Under price regulation where current prices remain fixed until future policy changes occur, no such opportunity exists to achieve the first best, and prices are never preferred. However, if we assume policy updates are driven in part by political rather than maximizing net societal benefits, the result changes and prices can again be preferred. The comparative advantage now depends the relative variance of noise shocks compared to true cost and benefit shocks. This contrasts sharply with the traditional comparative advantage that depends on the relative slopes of marginal costs and benefits. Applied to climate change, we estimate the comparative advantage of intertemporally tradable quantities (over prices) to be $2 billion over five years. This estimate grows if updates occur less frequently or could be made negative by political noise.

Alternative Sources of the Gains from International Trade: Variety, Creative Destruction, and Markups

The modern theory of international trade identifies several additional sources of the gains from international trade beyond the gains from traditional comparative advantage. These are the gains from importing new product varieties; the gains from “creative destruction” as the relatively most productive firms expand their output by exporting while the less-productive firms exit; and the gains from competition between firms in different countries, which can lead to reduced markups. Estimates of these various gains are provided for the United States and other countries.

English

The study seek to explore the extent and nature of trade and its growth over the period 2005 to 2013 between China and its five South Asian neighbours (Bangladesh, Bhutan, Pakistan, Sri Lanka, and Nepal). We measure the extent of trade by the trade intensity index and then check whether whole of this is explained by complementarity in the conventional sense. The study reveals that China’s trade intensity increased with all south Asian countries, thus confirming its greater presence in real terms. This in spite of the fact that trade complementarities between china with these economies have experienced decline over the period. This confirms the strong presence of factors apart from traditional comparative advantage perspective that have increased trade intensity. However, china’s import intensity with the region does not show a positive trend. As such china enjoys a trade surplus with these economies which in the long run may have many ramifications for these. Key words: Trade intensity and complementarities, China and South Asia.

Measuring patterns of specialization using trade in value added: the case of manufacturing in Italy

ABSTRACTThis article aims to contribute to the long-standing debate on the ‘anomaly’ of Italy’s specialization in manufacturing by providing fresh analysis based on new data. It offers: 1) a comprehensive survey of Italian comparative advantages measured in value-added terms and their evolution over time; 2) an international comparison of these advantages with Italy’s main competitors. Results show that the country’s traditional comparative advantages are substantially confirmed, a genuine capacity of the Italian domestic production factors to maintain added value in production with comparative advantage can be observed and new trends in terms of specialization and competitors are also highlighted, showing the influence of the international fragmentation of production on trade and specialization.

The Effect of Cross-Border E-Commerce on China’s International Trade: An Empirical Study Based on Transaction Cost Analysis

Reducing transaction costs by means of policy intervention could generate comparative advantages and contribute to the growth of international trade. Chinese government agencies have introduced a number of policies in support of rapidly growing cross-border e-commerce to promote China’s international trade. However, the previous literature has not empirically verified the precise effect of these policies on the growth of international trade while focusing on the impact of cross-border e-commerce on trade distance and consumer welfare. To address this gap, this paper investigates the impact of cross-border e-commerce on international trade in the context of China, mainly from the perspective of transaction cost economics in conjunction with the traditional comparative advantage model by analyzing information cost, negotiation cost, transportation cost, tariffs and middlemen cost separately. Firstly, the new theoretical model suggests that cross-border e-commerce may have a positive role in promoting international trade only when the negative impact caused by tariff cost and transportation cost is offset. Secondly, our result shows that cross-border e-commerce has a positive effect on the growth of China’s international trade in each year. However, the positive effect does not show incremental growth over time, possibly as a result of the weak implementation of favorable policies in trade, in addition to global trade shrinking.

Restoring the product variety and pro-competitive gains from trade with heterogeneous firms and bounded productivity

The monopolistic competition model in international trade offers three sources of gains from trade beyond that of traditional comparative advantage: an endogenous expansion in product variety; a pro-competitive reduction in the markups charged by firms; and the self-selection of more efficient firms into exporting. Recent literature on trade with heterogeneous firms has emphasized the third of these effects, while the first two effects are ruled out when using a Pareto distribution for productivity with a support that is unbounded above, and no fixed costs. The goal of this paper is to restore a theoretical role for product variety and pro-competitive gains from trade by using a bounded Pareto distribution for productivity, and to demonstrate their empirical importance. For the U.S. economy over 1992–2005, we find that product variety and the reduction in markups jointly contribute about 75% to the increase in welfare resulting from trade expansion, whereas an upper bound to the selection effect is that it contributes the remaining 25% to the increase in U.S. welfare.

China’s industrial transformation and the ‘new normal’

China’s industrial transformation faces four big roadblocks: the loss of traditional comparative advantage, weak domestic demand, low-end locking of the value chain, and structural and institutional obstacles. The shift of economic growth to structural upgrades, innovation and a service-based economy is the primary driving force required. China should implement four strategies. The first is to cultivate a new dynamic comparative advantage and inject new vitality for industrial transformation. The second is to let the market play a more decisive role and establish a long-term mechanism to expand domestic demand. The third is to promote the convergent development of global and national value chains, upgrading the value chain in horizontal and vertical axes. The fourth is to create an upgraded version of Chinese reform, manage the market with a pattern of negative listing and supervise the government with a pattern of positive listing.

New Economic Geography and Tax Competition in the PRC: A Firm-Level Data Analysis with Policy Implications

During 2000–2006, nearly 4,000–5,000 new foreign and domestic enterprises entered the export industry of the People’s Republic of China (PRC) yearly, with geographic concentration along the coastal areas. This paper empirically analyzes the spatial determinants of new entrants by applying traditional comparative advantage analysis, new economic geography of agglomeration theory, and tax competition theory by resource flow model. The heterogeneity of firm ownership and trade type enhances the understanding of investment location decisions. Processing traders differ substantially from nonprocessing traders in response to changes in wage cost, level of development in infrastructure, and proximity to the Pacific coast. The presence of foreign-invested enterprises creates a beacon effect on subsequent foreign and domestic investors. The paper also finds that agglomeration plays a greater role for investors specializing in the processing goods trade and highly skill-intensive or research and development-intensive production. Benefits from reduction in the value added tax rate and corporate income tax rate play an evident role for foreign investors and Hong Kong, China and Taipei, China investors in processing trade sector. The PRC’s policy makers intend to transform the “internationalization” process through attraction of foreign investment toward “localization” by reducing the processing good trading portion and by increasing the supply of domestically produced intermediate inputs for their exports. As the PRC moves up the high-value supply chain, expands its domestic market, and exports skill-intensive goods, processing goods traders may consider new locations or business models.

Study on the Countermeasures of China’s Agricultural Products Export to Cope with Low Carbon Trade Barriers

Under the background of global climate warming, the low carbon economy has become the focus of international attention. Some developed countries construct the low carbon trade barriers and implement trade protection on the grounds of environmental protection. This makes the cost of China’s agricultural products export increased, the scale of China’s agricultural products export reduced and the exertion of the traditional comparative advantage of China’s agricultural products inhibited, but at the same time promotes the development of China’s low carbon agriculture. The paper puts forward some countermeasures to cope with the low carbon trade barriers from the point of view of government and enterprises.

An empirical analysis on the impact of environmental regulations on pork trade: evidence from China

This paper uses the gravity model to examine the effect of environmental regulations on pork trade flows between different regions within China. We apply a linear programming tool to estimate pork trade flows from 2000 to 2008, and discuss the environmental acts on livestock pollution and income level to proxy environmental regulations. We use OLS regression and panel data with dummy variable in the cross-sectional GLS estimation. Our results indicate that the gap of environmental regulations between trade partners has a positive relationship with pork trade flows, and the difference in environmental regulations changes the traditional comparative advantage pattern to some extent. This paper provides convincing evidence for the pollution haven effect on livestock in China.

Division of Labor and Endogenous Comparative Advantage: A Smith-Ricardian Model of International Trade

This paper develops a Smith–Ricardian model that incorporates division of labor into the continuum-good Ricardian model of Dornbusch et al. (1977). The tradeoff between the efficiency gain and coordination cost in production determines the efficient level of division of labor. Consequently, the traditional comparative advantage becomes endogenous. The model is able to explain how the recent progress in information technology (IT) would affect the efficient level of division of labor and competitive margin. In particular, we show that absolute advantage in division of labor and relative labor supply play a crucial role in determining the different effects of universal IT progress on a country’s competitive margin in international trade.

National Innovation Systems: The Cases of Singapore and Finland

In an increasingly borderless world, a good deal of interest is still devoted to the performance of countries. The attention paid to various measures of international competitiveness of countries is a witness to this. According to conventional wisdom, countries can gain through engaging themselves in the international division of labour, specialising in goods they can produce relatively cheaply. While this is still part of the truth, it is today of course too narrow a view. Although much international exchange is still based on traditional comparative advantages - which emanate from different relative endowments of factors of production - the relative success of nations in terms of sustainable growth is increasingly dependent on competitive advantage based on their ability to innovate. This implies much more than just coming up with new technologies, products or production processes. There must also be capability to utilize and commercialize them. Thus, management and marketing knowledge must be there, as well as suitable financial channels. It may even be maintained that ability to adapt existing technical knowhow to new applications and to take it all the way to marketable products is at least as important as technical progress in itself. However, even this may not suffice. There also has to be an entrepreneurial drive that contributes the dynamism required.

National Innovation Systems: The Cases of Singapore and Finland

In an increasingly borderless world, a good deal of interest is still devoted to the performance of countries. The attention paid to various measures of international competitiveness of countries is a witness to this. According to conventional wisdom, countries can gain through engaging themselves in the international division of labour, specialising in goods they can produce relatively cheaply. While this is still part of the truth, it is today of course too narrow a view. Although much international exchange is still based on traditional comparative advantages - which emanate from different relative endowments of factors of production - the relative success of nations in terms of sustainable growth is increasingly dependent on competitive advantage based on their ability to innovate. This implies much more than just coming up with new technologies, products or production processes. There must also be capability to utilize and commercialize them. Thus, management and marketing knowledge must be there, as well as suitable financial channels. It may even be maintained that ability to adapt existing technical knowhow to new applications and to take it all the way to marketable products is at least as important as technical progress in itself. However, even this may not suffice. There also has to be an entrepreneurial drive that contributes the dynamism required.

Exporting and Environmental Performance: A Firm-level Productivity Analysis

The objective of this paper is to study empirically the relationship between export orientation and firms’ environmental performance from different perspectives of trade theory. On the one hand, productivity heterogeneity is analysed within the new trade-theoretical framework. The approach followed is to determine firm-level productivity components, including an environmental productivity indicator (as a performance measure) and taking as reference the Spanish food industry. On the other hand, from the traditional comparative advantage perspective, this study also develops an export performance model to evaluate the effect of technology, environmental variables and factor endowment on exporting. The results show greater environmental productivity and corporate efficiency for export-oriented firms. Our findings also determine the positive effect on firms’ export intensity of environmental performance as a factor of specialisation and technology proficiency.

Traditional Comparative Advantages Vs. Economies of Scale: NAFTA and GATT

Regional free trade zones have been unexpectedly successful in the last decade. Since 1980 the European Community enlarged significantly its membership and its scope. It now includes southern European countries, and market-integrating features allowing goods, people, services and capital to flow freely around an area accounting for about one fourth of world economic output. Based on economies of scale - we find a condition that determine whether trading blocks Such as NAFTA and the EU are complementary with and encourage global free trade - when this condition fails, instead, trading blocks undermine free trade. It is the purpose of this paper to re-examine the positive and negative aspects of trading blocs as they relate to gains from free trade. The paper is primarily a discussion of conceptual issues, although it is based on facts and on particular cases which are of interest to the trade liberalization in the Americas. We take a somewhat different approach to a familiar issue. Rather than asking the standard question of whether regional blocs help or hinder global free trade, we ask a more detailed question: what type of customs union is likely to lead to a trade war between the blocs, and what type of customs union is, instead, likely to lead to expanded global trade. In practical terms: what type of trade policies within the blocs will provide economic incentives for expanding free trade. We shall compare the impact on the world economy of free trade blocs which are organized around two alternative principles: one is traditional comparative advantages, the other is economies of scale. The aim is to determine how the patterns of trade inside the blocs determine the trade relations among the blocs.

Industry characteristics, spatial competition and industrial concentration – evidence from China

We study the determinants of a geographic concentration of manufacturing industries in a spatial competition framework. Based on a panel data set of China during 1995–2003, we have the following findings. First, some traditional comparative advantages in production factors such as labor endowment are becoming the major factors that prevent the industrial concentration. Second, the major factors that promote geographic manufacturing concentration are technology spillover and industry linkage. Third, the effect of economy of scale on manufacturing concentration is significant, but the direction depends on how the concentration is measured.

Comment on “International Production and Distribution Networks in East Asia: Eighteen Facts, Mechanics, and Policy Implications”

Comment on “International Production and Distribution Networks in East Asia: Eighteen Facts, Mechanics, and Policy Implications”

Home-Market and Factor-Endowment Effects in a Gravity Approach

This paper shows how the home-market effect can be estimated in the generalized gravity equation of Bergstrand, taking into account traditional comparative advantage effects arising from differences in factor endowment. The empirical results suggest the presence of significant home-market effects for differentiated goods in many manufacturing industries which may be capital intensive or labour intensive. At the same time, our results suggest that home-market effects can only be detected for data disaggregated at the industry level and not for aggregated data.