The Evolution of Comparative Advantage: Measurement and Implications

60 Pages Posted: 18 Nov 2014

See all articles by Andrei A. Levchenko

Andrei A. Levchenko

University of Michigan - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Jing Zhang

University of Michigan at Ann Arbor

Multiple version iconThere are 2 versions of this paper

Date Written: October 7, 2014

Abstract

We estimate productivities at the sector level for 72 countries and 5 decades, and examine how they evolve over time in both developed and developing countries. In both country groups, comparative advantage has become weaker: productivity grew systematically faster in sectors that were initially at greater comparative disadvantage. These changes have had a significant impact on trade volumes and patterns, and a non-negligible welfare impact. In the counterfactual scenario in which each country's comparative advantage remained the same as in the 1960s, and technology in all sectors grew at the same country-specific average rate, trade volumes would be higher, cross-country export patterns more dissimilar, and intra-industry trade lower than in the data. In this counterfactual scenario, welfare is also 1.6% higher for the median country compared to the baseline. The welfare impact varies greatly across countries, ranging from −1.1% to +4.3% among OECD countries, and from −6% to +41.9% among non-OECD countries.

Keywords: technological change, sectoral TFP, Ricardian models of trade, welfare

JEL Classification: F11, F43, O33, O47

Suggested Citation

Levchenko, Andrei A. and Zhang, Jing, The Evolution of Comparative Advantage: Measurement and Implications (October 7, 2014). FRB of Chicago Working Paper No. 2014-12, Available at SSRN: https://ssrn.com/abstract=2526379 or http://dx.doi.org/10.2139/ssrn.2526379

Andrei A. Levchenko

University of Michigan - Department of Economics ( email )

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National Bureau of Economic Research (NBER) ( email )

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Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Jing Zhang (Contact Author)

University of Michigan at Ann Arbor ( email )

500 S. State Street
Ann Arbor, MI 48109
United States

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