Comparative Advantage, Endowment Structure and Trade Imbalances - Theory and Evidence

30 Pages Posted: 24 Jan 2019

See all articles by Jim Huangnan Shen

Jim Huangnan Shen

University of London, School of Oriental and African Studies (SOAS), Economics; Center for International Development, Harvard Kennedy School, Harvard University

Chien-Chiang Lee

Nanchang University

Jun Zhang

Fudan University - China Center for Economic Studies (CCES)

Date Written: January 17, 2019

Abstract

This paper constructs a theoretical model to illustrate the inherent dynamics between the trade imbalance and the comparative advantage of factor endowment structure under a two-country setting (South vs North). Our model shows that the shift of comparative advantage of factor endowment structure from labor-intensiveness to capital-intensiveness in Southern country would lead to the shrinkage in trade imbalances for the Northern country. We further argue that the increase in the wage level in the Southern country would also lead to the increase in its trade imbalance .Our paper provides a first theoretical look to how the trade imbalance between two trading partners could be affected by the dynamics of comparative advantage of factor endowment structure of respective trading economies. We employ the panel GMM consisted of 157 selected developing countries to test our theory. It is found that the empirical evidences presented in the end are broadly consistent with the theories proposed in this paper.

Keywords: trade imbalance; comparative advantage; factor endowment structure; labor-intensiveness; capital-intensiveness; Southern country; Northern country

JEL Classification: F1, F32, F40

Suggested Citation

Shen, Jim Huangnan and Lee, Chien-Chiang and Zhang, Jun, Comparative Advantage, Endowment Structure and Trade Imbalances - Theory and Evidence (January 17, 2019). Available at SSRN: https://ssrn.com/abstract=3317513 or http://dx.doi.org/10.2139/ssrn.3317513

Jim Huangnan Shen (Contact Author)

University of London, School of Oriental and African Studies (SOAS), Economics ( email )

London, WC1E 7HU
United Kingdom

Center for International Development, Harvard Kennedy School, Harvard University ( email )

One Eliot Street Building
79 JFK Street
Cambridge, MA 02138
United States

Chien-Chiang Lee

Nanchang University ( email )

999 Xuefu Avenue
Hong Gu Tan New District
Nanchang, Jiangxi 330031
China
330031 (Fax)

Jun Zhang

Fudan University - China Center for Economic Studies (CCES) ( email )

China

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