The Evolution of Comparative Advantage: Measurement and Implications
University of Zurich, UBS International Center of Economics in Society, Working Paper No. 11
67 Pages Posted: 24 Apr 2015
Date Written: April 2015
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-specic 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 −4.6% 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: Suggested Citation