Trade & Technology Differences

Trade & Technology Differences

Deardorff, A. V. (1980). The General Validity of the Law of Comparative Advantage. Journal of Political Economy, 88(5), 941–957. https://ezproxy.lib.utexas.edu/login?url=https://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=5210016&site=ehost-live

Abstract: It is well known that the law of comparative advantage breaks down when applied to individual commodities or pairs of commodities in a many-commodity world. This paper shows that the law is nonetheless valid if restated in terms of averages across all commodities. Specifically, a theorem and several corollaries are derived which establish correlations between vectors of trade and vectors containing relative-autarky-price measures of comparative advantage. These results are proven in a general many-commodity model that allows for tariffs, transport costs, and other impediments to trade.

**Dornbusch, R., Fischer, S., & Samuelson, P. A. (1977). Comparative Advantage, Trade, and Payments in a Ricardian Model with a Continuum of Goods. American Economic Review, 67(5), 823–839.** https://ezproxy.lib.utexas.edu/login?url=https://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=4506041&site=ehost-live

Abstract: This paper discusses Ricardian trade and payments theory in the case of a continuum of goods. The analysis thus extends the development of many-commodity, two-country comparative advantage analysis as presented, for example, in Gottfried Haberler (1937). Frank Graham (1923). Paul Samuelson (1964). and Frank W, Taussig (1927), The literature is historically reviewed by John Chipman (1965). Perhaps surprisingly, the continuum assumption simplifies the analysis neatly in comparison with the discrete many-commodity case. The distinguishing feature of the Ricardian approach emphasised in this paper is the determination of the competitive margin in production between imported and exported goods. The analysis advances the existing literature by formally showing precisely how tariffs and transport costs establish a range of commodities that are not traded, and bow the price-specie flow mechanism does or does not give rise to movements in relative cost and price levels. The formal real model is introduced in Section I. Its equilibrium determines the relative wage and price structure and the efficient international specialization pattern. Section II considers standard comparative static questions of growth, demand shifts, technological change, and transfers. Extensions of the model to nontraded goods, tariffs, and transport costs are then studied in Section III. Monetary considerations are introduced in Section IV. which examines the price-specie mechanism under stable parities, floating exchange rate regimes, and also questions of unemployment under sticky money wages.

Eaton, J., & Kortum, S. (2002). Technology, Geography, and Trade. Econometrica, 70(5), 1741–1779. https://doi-org.ezproxy.lib.utexas.edu/10.1111/1468-0262.00352

Abstract: We develop a Ricardin trade model that incorporates realistic geographic features into general equilibrium. It delivers simple structural equations for bilateral trade with parameters relating to absolute advantage, to comparative advantage (promoting trade), and to geographic barriers (resisting it). We estimate the parameters with data on bilateral trade in manufactures, prices, and geography from 19 OECD countries in 1990. We use the model to explore various issues such as the gains from trade, the role of trade in spreading the benefits of new technology, and the effects of tariff reduction.

Bernhofen, D. M., & Brown, J. C. (2004). A Direct Test of the Theory of Comparative Advantage: The Case of Japan. Journal of Political Economy, 112(1), 48–67. https://doi-org.ezproxy.lib.utexas.edu/10.1086/379944

Abstract: We exploit Japan's sudden and complete opening up to international trade in the 1860s to test the empirical validity of one of the oldest and most fundamental propositions in economics: the theory of comparative advantage. Historical evidence supports the assertion that the characteristics of the Japanese economy at the time were compatible with the key assumptions of the neoclassical trade model. Using detailed product-specific data on autarky prices and trade flows, we find that the autarky price value of Japan's trade is negative for each year of the period 1868--75. This confirms the prediction of the theory.

Alvarez, F., & Lucas, , R. E. (2007). General equilibrium analysis of the Eaton–Kortum model of international trade. Journal of Monetary Economics, 54(6), 1726–1768. https://ezproxy.lib.utexas.edu/login?url=https://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=26151622&site=ehost-live

Abstract: We study a variation of the Eaton–Kortum model, a competitive, constant-returns-to-scale multicountry Ricardian model of trade. We establish existence and uniqueness of an equilibrium with balanced trade where each country imposes an import tariff. We analyze the determinants of the cross-country distribution of trade volumes, such as size, tariffs and distance, and compare a calibrated version of the model with data for the largest 60 economies. We use the calibrated model to estimate the gains of a world-wide trade elimination of tariffs, using the theory to explain the magnitude of the gains as well as the differential effect arising from cross-country differences in pre-liberalization tariff levels and country size.

Waugh, M. E. (2010). International Trade and Income Differences. American Economic Review, 100(5), 2093–2124. https://ezproxy.lib.utexas.edu/login?url=https://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=55703994&site=ehost-live

Abstract: I develop a novel view of the trade frictions between rich and poor countries by arguing that to reconcile bilateral trade volumes and price data within a standard gravity model, the trade frictions between rich and poor countries must be systematically asymmetric, with poor countries facing higher costs to export relative to rich countries. I provide a method to model these asymmetries and demonstrate the merits of my approach relative to alternatives in the trade literature. I then argue that these trade frictions are quantitatively important to understanding the large differences in standards of living and total factor productivity across countries.

Levchenko, A. A., & Zhang, J. (2016). The evolution of comparative advantage: Measurement and welfare implications. Journal of Monetary Economics, 78, 96–111. https://ezproxy.lib.utexas.edu/login?url=https://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=113954148&site=ehost-live

Abstract: Using novel estimates of sectoral total factor productivities for 72 countries across 5 decades we provide evidence of relative productivity convergence: productivity grew systematically faster in initially relatively less productive sectors. These changes have had a significant impact on trade volumes and patterns, and a non-negligible welfare impact. Had productivity in each country’s manufacturing sector relative to the US remained the same as in the 1960s, trade volumes would be higher, cross-country export patterns more dissimilar, and intra-industry trade lower than in the data. Relative sectoral productivity convergence – holding average growth fixed – had a modest negative welfare impact.

Costinot, A., Donaldson, D., & Komunjer, I. (2012). What Goods Do Countries Trade? A Quantitative Exploration of Ricardo’s Ideas. Review of Economic Studies, 79(2), 581–608. https://doi-org.ezproxy.lib.utexas.edu/10.1093/restud/rdr033

Abstract: The Ricardian model predicts that countries should produce and export relatively more in industries in which they are relatively more productive. Though one of the most celebrated insights in the theory of international trade, this prediction has received little attention in the empirical literature since the mid-1960s. The main reason behind this lack of popularity is the absence of clear theoretical foundations to guide the empirical analysis. Building on the seminal work of Eaton and Kortum (“Technology, Geography, and Trade”, Econometrica, 70, 1741–1779 2002), we offer such foundations and use them to quantify the importance of Ricardian comparative advantage. In the process, we also provide a theoretically consistent alternative to Balassa's (1965, “An Empirical Demonstration of Classical Comparative Cost Theory”, Review of Economics and Statistics, 45, 231–238) well-known index of “revealed comparative advantage”.

Dekle, R., Eaton, J., & Kortum, S. (2008). Global Rebalancing with Gravity: Measuring the Burden of Adjustment. IMF Staff Papers, 2008(005), A006. Retrieved Feb 13, 2024, from https://doi.org/10.5089/9781589067240.024.A006

Abstract: This paper uses a 42-country model of production and trade to assess the implications of eliminating current account imbalances for relative wages, relative GDPs, real wages, and real absorption. How much relative GDPs need to change depends on flexibility of two forms: factor mobility and adjustment in sourcing of imports, with more flexibility requiring less change. At the extreme, U.S. GDP falls by 30 percent relative to the world’s. Because of the pervasiveness of nontraded goods, however, most domestic prices move in parallel with relative GDP, so that changes in real GDP are small.