Unpacking Sources of Comparative Advantage: A Quantitative Approach

46 Pages Posted: 26 Oct 2008 Last revised: 27 May 2009

See all articles by Davin Chor

Davin Chor

Dartmouth College - Tuck School of Business; National University of Singapore (NUS) - Department of Economics

Date Written: May 25, 2009

Abstract

This paper develops an approach for quantifying the importance of different sources of comparative advantage for country welfare, based on the Eaton and Kortum (2002) model extended 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 production needs they can best meet with their factor endowments and institutional strengths. I estimate the model parameters using a simulated method of moments procedure to account for the prevalence of zeroes in the bilateral trade data. I apply the model to explore various quantitative questions, such as how much distance, Ricardian productivity, factor endowments, and institutions each matter for country welfare in the global trade equilibrium.

Keywords: Comparative advantage, bilateral trade flows, gravity, Ricardian model, factor endowments, institutional determinants of trade, simulated method of moments

JEL Classification: C15, F11, F15, F17

Suggested Citation

Chor, Davin, Unpacking Sources of Comparative Advantage: A Quantitative Approach (May 25, 2009). Available at SSRN: https://ssrn.com/abstract=1289543 or http://dx.doi.org/10.2139/ssrn.1289543

Davin Chor (Contact Author)

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

National University of Singapore (NUS) - Department of Economics ( email )

1 Arts Link, AS2 #06-02
Singapore 117570, Singapore 119077
Singapore

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