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Comparative Advantage, Exchange Rates, and Sectoral Trade Balances of Major Industrial Countries

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  • Stephen S. Golub

    (International Monetary Fund)

Abstract
This paper uses a Ricardian framework to clarify the role of microeconomic and macroeconomic factors governing the time-series and cross-sectional 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-sectional 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-sectional results are, however, less conclusive.

Suggested Citation

  • Stephen S. Golub, 1994. "Comparative Advantage, Exchange Rates, and Sectoral Trade Balances of Major Industrial Countries," IMF Staff Papers, Palgrave Macmillan, vol. 41(2), pages 286-313, June.
    • Handle: RePEc:pal:imfstp:v:41:y:1994:i:2:p:286-313
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    Citations

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    Cited by:

    1. Carlin, Wendy & Glyn, Andrew & Van Reenen, John, 2001. "Export Market Performance of OECD Countries: An Empirical Examination of the Role of Cost Competitiveness," Economic Journal, Royal Economic Society, vol. 111(468), pages 128-162, January.
    2. Aysan, Ahmet Faruk & Hacihasanoglu, Yavuz Selim, 2007. "Investigation on the Determinants of Turkish Export-Boom in 2000s," MPRA Paper 5493, University Library of Munich, Germany.
    3. Arash Habibi, 2019. "Non-linear impact of exchange rate changes on U.S. industrial production," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 8(1), pages 1-17, December.
    4. repec:got:cegedp:74 is not listed on IDEAS
    5. Brigitte Granville & Dominik Nagly, 2014. "Conflicting incentives for the public to support the EMU," Working Papers 50, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.
    6. Louis D. Johnston & Menzie D. Chinn, 1996. "How well is the United States competing? A comment on Papadakis," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 15(1), pages 68-81.
    7. Özler, Sule & Taymaz, Erol & YIlmaz, Kamil, 2009. "History Matters for the Export Decision: Plant-Level Evidence from Turkish Manufacturing Industry," World Development, Elsevier, vol. 37(2), pages 479-488, February.
    8. Nowak-Lehmann D., Felicitas & Vollmer, Sebastian & Martínez-Zarzoso, Inmaculada, 2008. "Does comparative advantage make countries competitive? A comparison of China and Mexico," University of Göttingen Working Papers in Economics 74, University of Goettingen, Department of Economics.
    9. Brigitte Granville & Dominik Nagly, 2013. "Determinants of relative bargaining power in monetary unions," Working Papers 47, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.
    10. Avik Chakrabarti, 2000. "Does Trade Cause Inequality?," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 25(2), pages 1-21, December.
    11. Munehisa Kasuya & Toshihiro Okada, 2003. "The Effects of Technology Changes on the Sectoral Trade Patterns and the Import Penetration Ratio," Bank of Japan Working Paper Series Research and Statistics D, Bank of Japan.
    12. Edwards, Lawrence & Golub, Stephen S., 2004. "South Africa's International Cost Competitiveness and Exports in Manufacturing," World Development, Elsevier, vol. 32(8), pages 1323-1339, August.
    13. Menzie Chinn, 2006. "A Primer on Real Effective Exchange Rates: Determinants, Overvaluation, Trade Flows and Competitive Devaluation," Open Economies Review, Springer, vol. 17(1), pages 115-143, January.
    14. Hiroaki Sasaki, 2011. "Export of Deindustrialization and Anti-Balassa-Samuelson Effect: The Consequences of Productivity Growth Differential," Discussion papers e-10-015, Graduate School of Economics Project Center, Kyoto University.
    15. Stephen S. Golub & Janet Ceglowski, 2002. "South African Real Exchange Rates And Manufacturing Competitiveness," South African Journal of Economics, Economic Society of South Africa, vol. 70(6), pages 1047-1075, September.
    16. Menzie D. Chinn, 2004. "Incomes, Exchange Rates and the US Trade Deficit, Once Again," International Finance, Wiley Blackwell, vol. 7(3), pages 451-469, December.
    17. Menzie D. Chinn, 2005. "Doomed to Deficits? Aggregate U.S. Trade Flows Re-Examined," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 141(3), pages 460-485, October.
    18. Lawrence Edwards & Volker Schoer, 2002. "Measures Of Competitiveness: A Dynamic Approach To South Africa'S Trade Performance In The 1990s," South African Journal of Economics, Economic Society of South Africa, vol. 70(6), pages 1008-1046, September.
    19. Brigitte Granville & Dominik Nagly, 2015. "Conflicting Incentives for Public Support for EMU," Manchester School, University of Manchester, vol. 83, pages 142-157, December.

    More about this item

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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