Unpacking Sources of Comparative Advantage: A Quantitative Approach

This paper develops an approach for quantifying the relative importance of different sources of comparative advantage for country welfare in a global trade equilibrium. To explain the pattern of specialization, I present a multi-country, perfectly-competitive Ricardian model that extends Eaton and K...

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Main Author: CHOR, Davin
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Language:English
Published: Institutional Knowledge at Singapore Management University 2008
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Online Access:https://ink.library.smu.edu.sg/soe_research/951
https://ink.library.smu.edu.sg/context/soe_research/article/1950/viewcontent/UnpackingSources.pdf
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spelling sg-smu-ink.soe_research-19502019-04-28T02:01:41Z Unpacking Sources of Comparative Advantage: A Quantitative Approach CHOR, Davin This paper develops an approach for quantifying the relative importance of different sources of comparative advantage for country welfare in a global trade equilibrium. To explain the pattern of specialization, I present a multi-country, perfectly-competitive Ricardian model that extends Eaton and Kortum (2002) to predict industry trade flows. In this framework, comparative advantage is determined by the interaction of country and industry characteristics, with countries specializing in industries whose specific production needs they are best able to meet with their factor endowments, institutional environment, and technological strengths. I estimate the model parameters using a large dataset of bilateral trade flows, comprising 82 countries and 20 manufacturing industries. I present results from a baseline OLS approach, and a simulated method of moments (SMM) procedure that takes into account the prevalence of zero trade flows in the data. The SMM estimates imply large average welfare gains from a hypothetical reduction in distance barriers, with developing countries benefiting substantially more than the OECD. I also examine the induced shift in industry composition when countries raise their factor endowments or improve the quality of their institutions, and quantify the welfare gains generated by such policy moves. 2008-10-01T07:00:00Z text application/pdf https://ink.library.smu.edu.sg/soe_research/951 https://ink.library.smu.edu.sg/context/soe_research/article/1950/viewcontent/UnpackingSources.pdf http://creativecommons.org/licenses/by-nc-nd/4.0/ Research Collection School Of Economics eng Institutional Knowledge at Singapore Management University Comparative advantage Factor endowments Gravity Institutional determinants of trade Ricardian model Simulated method of moments International Economics
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic Comparative advantage
Factor endowments
Gravity
Institutional determinants of trade
Ricardian model
Simulated method of moments
International Economics
spellingShingle Comparative advantage
Factor endowments
Gravity
Institutional determinants of trade
Ricardian model
Simulated method of moments
International Economics
CHOR, Davin
Unpacking Sources of Comparative Advantage: A Quantitative Approach
description This paper develops an approach for quantifying the relative importance of different sources of comparative advantage for country welfare in a global trade equilibrium. To explain the pattern of specialization, I present a multi-country, perfectly-competitive Ricardian model that extends Eaton and Kortum (2002) to predict industry trade flows. In this framework, comparative advantage is determined by the interaction of country and industry characteristics, with countries specializing in industries whose specific production needs they are best able to meet with their factor endowments, institutional environment, and technological strengths. I estimate the model parameters using a large dataset of bilateral trade flows, comprising 82 countries and 20 manufacturing industries. I present results from a baseline OLS approach, and a simulated method of moments (SMM) procedure that takes into account the prevalence of zero trade flows in the data. The SMM estimates imply large average welfare gains from a hypothetical reduction in distance barriers, with developing countries benefiting substantially more than the OECD. I also examine the induced shift in industry composition when countries raise their factor endowments or improve the quality of their institutions, and quantify the welfare gains generated by such policy moves.
format text
author CHOR, Davin
author_facet CHOR, Davin
author_sort CHOR, Davin
title Unpacking Sources of Comparative Advantage: A Quantitative Approach
title_short Unpacking Sources of Comparative Advantage: A Quantitative Approach
title_full Unpacking Sources of Comparative Advantage: A Quantitative Approach
title_fullStr Unpacking Sources of Comparative Advantage: A Quantitative Approach
title_full_unstemmed Unpacking Sources of Comparative Advantage: A Quantitative Approach
title_sort unpacking sources of comparative advantage: a quantitative approach
publisher Institutional Knowledge at Singapore Management University
publishDate 2008
url https://ink.library.smu.edu.sg/soe_research/951
https://ink.library.smu.edu.sg/context/soe_research/article/1950/viewcontent/UnpackingSources.pdf
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