What Goods Do Countries Trade? A Quantitative Exploration of Ricardo's Ideas

58 Pages Posted: 16 Aug 2010 Last revised: 27 Aug 2010

See all articles by Arnaud Costinot

Arnaud Costinot

University of California, San Diego (UCSD) - Department of Economics; Massachusetts Institute of Technology (MIT) - Department of Economics

Dave Donaldson

Stanford University - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); Bureau for Research and Economic Analysis of Development (BREAD)

Ivana Komunjer

University of California, San Diego (UCSD) - Department of Economics

Date Written: August 2010

Abstract

The Ricardian model predicts that countries should produce and export relatively more in industries in which they are relatively more productive. Though one of the most celebrated insights in the theory of international trade, this prediction has received virtually no attention in the empirical literature since the mid-sixties. The main reason behind this lack of popularity is the absence of clear theoretical foundations to guide the empirical analysis. Building on the seminal work of Eaton and Kortum (2002), the present paper offers such foundations and uses them to quantify the importance of Ricardian comparative advantage. Using trade and productivity data from 1997, we estimate that, ceteris paribus, the elasticity of bilateral exports with respect to observed productivity is 6.53. From a welfare standpoint, however, the removal of Ricardian comparative advantage at the industry level would only lead, on average, to a 5.5% decrease in the total gains from trade.

Suggested Citation

Costinot, Arnaud and Donaldson, Dave and Komunjer, Ivana, What Goods Do Countries Trade? A Quantitative Exploration of Ricardo's Ideas (August 2010). NBER Working Paper No. w16262. Available at SSRN: https://ssrn.com/abstract=1658289

Arnaud Costinot (Contact Author)

University of California, San Diego (UCSD) - Department of Economics ( email )

9500 Gilman Drive
La Jolla, CA 92093-0508
United States

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

50 Memorial Drive
E52-391
Cambridge, MA 02142
United States

Dave Donaldson

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Bureau for Research and Economic Analysis of Development (BREAD) ( email )

Duke University
Durham, NC 90097
United States

Ivana Komunjer

University of California, San Diego (UCSD) - Department of Economics ( email )

9500 Gilman Drive
La Jolla, CA 92093-0508
United States
(+1 858) 822-0667 (Phone)
(+1 858) 534-0712 (Fax)

HOME PAGE: http://econ.ucsd.edu/komunjer

Register to save articles to
your library

Register

Paper statistics

Downloads
161
Abstract Views
869
rank
181,701
PlumX Metrics