Comparative advantage and strategic specialization

This paper shows that a strong comparative advantage is necessary for free trade and specialization in a 2 × 2 symmetric Ricardian model to be achieved in a Nash equilibrium. Governments strategically control labor distribution across industries, and representative agents maximize Cobb–Douglas utili...

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Main Author: Kang, Minwook
Other Authors: School of Social Sciences
Format: Article
Language:English
Published: 2019
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Online Access:https://hdl.handle.net/10356/105738
http://hdl.handle.net/10220/48741
http://dx.doi.org/10.1111/roie.12300
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Institution: Nanyang Technological University
Language: English
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spelling sg-ntu-dr.10356-1057382019-12-10T14:47:43Z Comparative advantage and strategic specialization Kang, Minwook School of Social Sciences Nash Equilibrium DRNTU::Social sciences::Economic theory::International trade Cobb–Douglas This paper shows that a strong comparative advantage is necessary for free trade and specialization in a 2 × 2 symmetric Ricardian model to be achieved in a Nash equilibrium. Governments strategically control labor distribution across industries, and representative agents maximize Cobb–Douglas utilities. A Nash equilibrium with complete specialization is achieved if and only if relative productivity exceeds a key value of 3, which is considered a very large number based on previous empirical studies. This paper also introduces a two‐stage game where each government chooses labor distribution first and then tariffs. In this two‐stage game, complete specialization is never achieved for any relative productivity level. Finally, by generalizing the Cobb–Douglas model into constant elasticity of substitution (CES) preferences, I show that if immiserizing growth effects exist, complete specialization could not be achieved for any level of relative productivity. Accepted version 2019-06-13T09:13:52Z 2019-12-06T21:56:57Z 2019-06-13T09:13:52Z 2019-12-06T21:56:57Z 2017 Journal Article Kang, M. (2017). Comparative advantage and strategic specialization. Review of International Economics, 26(1), 1-19. doi:10.1111/roie.12300 0965-7576 https://hdl.handle.net/10356/105738 http://hdl.handle.net/10220/48741 http://dx.doi.org/10.1111/roie.12300 en Review of International Economics © 2017 John Wiley & Sons Ltd. This is the peer reviewed version of the following article: Kang, M. (2018). Comparative advantage and strategic specialization. Review of International Economics, 26(1), 1-19. doi:10.1111/roie.12300, which has been published in final form at http://dx.doi.org/10.1111/roie.12300. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions. 32 p. application/pdf
institution Nanyang Technological University
building NTU Library
country Singapore
collection DR-NTU
language English
topic Nash Equilibrium
DRNTU::Social sciences::Economic theory::International trade
Cobb–Douglas
spellingShingle Nash Equilibrium
DRNTU::Social sciences::Economic theory::International trade
Cobb–Douglas
Kang, Minwook
Comparative advantage and strategic specialization
description This paper shows that a strong comparative advantage is necessary for free trade and specialization in a 2 × 2 symmetric Ricardian model to be achieved in a Nash equilibrium. Governments strategically control labor distribution across industries, and representative agents maximize Cobb–Douglas utilities. A Nash equilibrium with complete specialization is achieved if and only if relative productivity exceeds a key value of 3, which is considered a very large number based on previous empirical studies. This paper also introduces a two‐stage game where each government chooses labor distribution first and then tariffs. In this two‐stage game, complete specialization is never achieved for any relative productivity level. Finally, by generalizing the Cobb–Douglas model into constant elasticity of substitution (CES) preferences, I show that if immiserizing growth effects exist, complete specialization could not be achieved for any level of relative productivity.
author2 School of Social Sciences
author_facet School of Social Sciences
Kang, Minwook
format Article
author Kang, Minwook
author_sort Kang, Minwook
title Comparative advantage and strategic specialization
title_short Comparative advantage and strategic specialization
title_full Comparative advantage and strategic specialization
title_fullStr Comparative advantage and strategic specialization
title_full_unstemmed Comparative advantage and strategic specialization
title_sort comparative advantage and strategic specialization
publishDate 2019
url https://hdl.handle.net/10356/105738
http://hdl.handle.net/10220/48741
http://dx.doi.org/10.1111/roie.12300
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