Structural Transformation and Comparative Advantage: Implications for Small Open Economies

21 Pages Posted: 25 Apr 2017

See all articles by Unjung Whang

Unjung Whang

Korea Institute for International Economic Policy

Date Written: April 2017

Abstract

Data from the last half‐century show that revealed comparative advantage in agriculture (manufacturing) is negatively (positively) associated with the rate of decline in labour share in agriculture. Motivated by this finding, the author constructs and calibrates a simple open‐economy model, where there is learning‐by‐doing in manufacturing and industry‐supplied inputs to agricultural production. This paper focuses on the effects of comparative advantage and learning‐by‐doing on structural transformation and calibrate the model to the US and the UK data to estimate key parameters of the model. Quantitative experiments show that holding constant other factors a small difference in a country's comparative advantage can account for a large variation in structural transformation for open economies, which does not require nearly as much differential productivity growth as in closed‐economy models.

Suggested Citation

Whang, Unjung, Structural Transformation and Comparative Advantage: Implications for Small Open Economies (April 2017). The World Economy, Vol. 40, Issue 4, pp. 743-763, 2017, Available at SSRN: https://ssrn.com/abstract=2957942 or http://dx.doi.org/10.1111/twec.12398

Unjung Whang (Contact Author)

Korea Institute for International Economic Policy ( email )

[30147] Building C, Sejong National Research Compl
Seoul, 370
Korea, Republic of (South Korea)

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