Working Paper

The Evolution of Comparative Advantage: Measurement and Implications

Abstract: 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-specific 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 ?6% to +41.9% among non-OECD countries.

Keywords: technological change; sectoral TFP; Ricardian models of trade; welfare;

JEL Classification: F11; F43; O33; O47;

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Bibliographic Information

Provider: Federal Reserve Bank of Chicago

Part of Series: Working Paper Series

Publication Date: 2014-10-07

Number: WP-2014-12

Pages: 60 pages