Technological Improvements and Comparative Advantage Reconsidered

Abstract

Given a world consisting of two countries, two commodities, and two consumers, this paper analyzes the potential effects of the current global trend of shifting world productions with regards to consumer goods. When technological improvements occur in a developing country, would terms of trade remain favorable for a developed country? Would both countries benefit? Instances where one or both countries benefit are feasible. However the developed country may lose as a result of an improvement in the production of the good that previously had been exported by the developed country.

Keywords: International trade, Samuelson, autarky equilibrium, comparative advantage, endowment shock

JEL Classification: F0, F1, O, O1, O3, D51