Comparative Advantage, Exchange Rates, and G-7 Sectoral Trade Balances

50 Pages Posted: 15 Feb 2006

See all articles by Stephen S. Golub

Stephen S. Golub

Swarthmore College - Economics Department

Date Written: January 1994

Abstract

This paper uses a Ricardian framework to clarify the role of microeconomic and macroeconomic factors governing the time series and cross-section behavior of sectoral trade balances. Unit labor costs and trade balances are calculated for several sectors for the seven major industrial countries. The time series and cross-section variation in sectoral unit labor costs is decomposed into relative productivity, wage differentials, and exchange rate variations. The main findings are that changes over time in sectoral trade balances, especially for the United States and Japan, are quite well explained by the evolution of unit labor cost, suggesting that trade patterns conform to comparative advantage. The cross-section results are, however, less conclusive.

JEL Classification: F14, F32

Suggested Citation

Golub, Stephen S., Comparative Advantage, Exchange Rates, and G-7 Sectoral Trade Balances (January 1994). IMF Working Paper No. 94/5, Available at SSRN: https://ssrn.com/abstract=883419

Stephen S. Golub (Contact Author)

Swarthmore College - Economics Department ( email )

Swarthmore, PA 19081
United States
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