Revisiting Ricardo: Can Productivity Differences Explain the Pattern of Trade between EU Countries?

LICOS Discussion Paper No. 235/2009

20 Pages Posted: 27 Apr 2009

See all articles by Wilfried Altzinger

Wilfried Altzinger

Vienna University of Economics and Business

Jože P. Damijan

University of Ljubljana, Slovenia - Department of International Economics

Date Written: 2009

Abstract

In this paper we revise the empirical tests of the Ricardian model by testing properly the Ricardian hypotheses on bilateral trade flows. Our tests are based on NACE 2-digit industry aggregation of productivity and of bilateral trade flows between 21 EU member states for the period 1994-2004. We compare the matchings between relative bilateral sectoral productivity rankings and bilateral sectoral exports-to-imports ratio rankings for each of 21 x 20 country pairs. We find that the Ricardian hypothesis is surprisingly good at predicting the static pattern of bilateral trade between individual EU member states even after controlling for the Heckscher-Ohlin type of capital-to-labor ratios. Long-term changes in the bilateral trade patterns, however, do not seem to be explained consistently neither by the variation in changes of relative productivity nor by the variation in changes of capital-to-labor ratios. Furthermore, we find quite a strong autoregressive impact of initial trade patterns on the longterm comparative advantages in the bilateral trade among countries. This implies that comparative advantages are structural by nature and that Ricardian differences in relative productivity can account for a good part of their static representation. Explaining their dynamic evolution over time, however, requires further research.

Keywords: International trade, Productivity, Ricardian hypothesis, Empirical tests

JEL Classification: D24, F14

Suggested Citation

Altzinger, Wilfried and Damijan, Joze P., Revisiting Ricardo: Can Productivity Differences Explain the Pattern of Trade between EU Countries? (2009). LICOS Discussion Paper No. 235/2009. Available at SSRN: https://ssrn.com/abstract=1395598 or http://dx.doi.org/10.2139/ssrn.1395598

Wilfried Altzinger

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria
43 1 31336 4511 (Phone)
43 1 31336 728 (Fax)

Joze P. Damijan (Contact Author)

University of Ljubljana, Slovenia - Department of International Economics ( email )

Kardeljeva ploscad 17
Ljubljana, 1000
Slovenia
+386 61 189 24 00 (Phone)
+386 61 189 26 98 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
82
Abstract Views
506
rank
298,943
PlumX Metrics