[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/mie/wpaper/500.html
   My bibliography  Save this paper

Local Comparative Advantage: Trade Costs and the Pattern of Trade

Author

Listed:
  • Alan V Deardorff

    (University of Michigan)

Abstract
When there are costs of trade, such as transport or other costs, the pattern of trade may not be well described by the usual measures of comparative advantage, which simply compare a country’s costs or autarky prices to those of the world. Instead, a better comparison takes into account the costs of trade. This paper shows first, in an example, how trade patterns can vary with costs of trade. It then provides restatements of the Law of Comparative Advantage, first in a Ricardian model with trade costs. It then extends a result from Deardorff (1980) and Dixit and Norman (1980) to include trade costs explicitly in a more general framework. It uses this result to derive two correlations that relate trade patterns to measures of comparative advantage that take account of both autarky prices and the costs of trade. Finally, it examines the solution to a trade model with product differentiation in order to make the potential role of trade costs more explicit, both algebraically and graphically. With product differentiation either by country or by firm, net trade in an industry, both bilaterally and globally, depends on a country’s costs of both production and trade relative to an index of those costs for other countries.

Suggested Citation

  • Alan V Deardorff, 2004. "Local Comparative Advantage: Trade Costs and the Pattern of Trade," Working Papers 500, Research Seminar in International Economics, University of Michigan.
    • Handle: RePEc:mie:wpaper:500
    as

    Download full text from publisher

    File URL: http://fordschool.umich.edu/rsie/workingpapers/Papers476-500/r500.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Alan V. Deardorff, 2011. "The General Validity of the Heckscher-Ohlin Theorem," World Scientific Book Chapters, in: Robert M Stern (ed.), Comparative Advantage, Growth, And The Gains From Trade And Globalization A Festschrift in Honor of Alan V Deardorff, chapter 11, pages 91-103, World Scientific Publishing Co. Pte. Ltd..
    2. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    3. Alan V. Deardorff, 2011. "Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?," World Scientific Book Chapters, in: Robert M Stern (ed.), Comparative Advantage, Growth, And The Gains From Trade And Globalization A Festschrift in Honor of Alan V Deardorff, chapter 24, pages 267-293, World Scientific Publishing Co. Pte. Ltd..
    4. Donald R. Davis & David E. Weinstein, 2001. "An Account of Global Factor Trade," American Economic Review, American Economic Association, vol. 91(5), pages 1423-1453, December.
    5. Alan V. Deardorff, 2011. "Trade and Welfare Implications of Networks," World Scientific Book Chapters, in: Robert M Stern (ed.), Comparative Advantage, Growth, And The Gains From Trade And Globalization A Festschrift in Honor of Alan V Deardorff, chapter 29, pages 347-369, World Scientific Publishing Co. Pte. Ltd..
    6. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
    7. Maurice Obstfeld & Kenneth Rogoff, 2001. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," NBER Chapters, in: NBER Macroeconomics Annual 2000, Volume 15, pages 339-412, National Bureau of Economic Research, Inc.
    8. Ronald W. Jones, 1961. "Comparative Advantage and the Theory of Tariffs: A Multi-Country, Multi-Commodity Model," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 28(3), pages 161-175.
    9. Alan V. Deardorff, 2011. "The General Validity of the Law of Comparative Advantage," World Scientific Book Chapters, in: Robert M Stern (ed.), Comparative Advantage, Growth, And The Gains From Trade And Globalization A Festschrift in Honor of Alan V Deardorff, chapter 10, pages 73-90, World Scientific Publishing Co. Pte. Ltd..
    10. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
    11. Bowen, Harry P & Leamer, Edward E & Sveikauskas, Leo, 1987. "Multicountry, Multifactor Tests of the Factor Abundance Theory," American Economic Review, American Economic Association, vol. 77(5), pages 791-809, December.
    12. James E. Rauch, 2001. "Business and Social Networks in International Trade," Journal of Economic Literature, American Economic Association, vol. 39(4), pages 1177-1203, December.
    13. Ms. Dalia S Hakura, 1999. "A Test of the General Validity of the Heckscher-Ohlin Theorem for Trade in the European Community," IMF Working Papers 1999/070, International Monetary Fund.
    14. Bergstrand, Jeffrey H, 1985. "The Gravity Equation in International Trade: Some Microeconomic Foundations and Empirical Evidence," The Review of Economics and Statistics, MIT Press, vol. 67(3), pages 474-481, August.
    15. repec:fth:michin:429 is not listed on IDEAS
    16. Bergstrand, Jeffrey H, 1989. "The Generalized Gravity Equation, Monopolistic Competition, and the Factor-Proportions Theory in International Trade," The Review of Economics and Statistics, MIT Press, vol. 71(1), pages 143-153, February.
    17. Dornbusch, Rudiger & Fischer, Stanley & Samuelson, Paul A, 1977. "Comparative Advantage, Trade, and Payments in a Ricardian Model with a Continuum of Goods," American Economic Review, American Economic Association, vol. 67(5), pages 823-839, December.
    18. Debaere, P., 1998. ""Endowments Do Matter" Relative Factor Abundance and Trade," Working Papers 429, Research Seminar in International Economics, University of Michigan.
    19. McCallum, John, 1995. "National Borders Matter: Canada-U.S. Regional Trade Patterns," American Economic Review, American Economic Association, vol. 85(3), pages 615-623, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. James Harrigan, 2001. "Specialization and the Volume of Trade: Do the Data Obey the Laws?," NBER Working Papers 8675, National Bureau of Economic Research, Inc.
    2. Daniel L. Millimet & Thomas Osang, 2007. "Do state borders matter for U.S. intranational trade? The role of history and internal migration," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 40(1), pages 93-126, February.
    3. Cafiso, Gianluca, 2007. "The Geographic Space in International Trade: from Gravity to New Economic Geography," MPRA Paper 20269, University Library of Munich, Germany.
    4. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Journal of Economic Literature, American Economic Association, vol. 42(3), pages 691-751, September.
    5. Daniel Bernhofen, 2010. "The Empirics of General Equilibrium Tade Theory: What Have we Learned?," CESifo Working Paper Series 3242, CESifo.
    6. Paas, Tiiu, 2002. "Gravity approach for exploring Baltic Sea regional integration in the field of international trade," HWWA Discussion Papers 180, Hamburg Institute of International Economics (HWWA).
    7. Simone Juhasz Silva & Douglas Nelson, 2012. "Does Aid Cause Trade? Evidence from an Asymmetric Gravity Model," The World Economy, Wiley Blackwell, vol. 35(5), pages 545-577, May.
    8. Idrisova, Vittoria (Идрисова, Виттория), 2017. "Determinants of Value-Added Exports: The Role of Import Demand Factors [Детерминанты Экспорта Добавленной Стоимости: Роль Факторов Спроса На Импорт]," Working Papers 051715, Russian Presidential Academy of National Economy and Public Administration.
    9. Whalley, John & Xin, Xian, 2009. "Home and regional biases and border effects in Armington type models," Economic Modelling, Elsevier, vol. 26(2), pages 309-319, March.
    10. J.A. Bikker, 2009. "An extended gravity model with substitution applied to international trade," Working Papers 09-17, Utrecht School of Economics.
    11. Valeriano Martínez-San Román & Marta Bengoa & Blanca Sánchez-Robles, 2016. "Foreign direct investment, trade integration and the home bias: evidence from the European Union," Empirical Economics, Springer, vol. 50(1), pages 197-229, February.
    12. Olivier Lamotte, 2003. "Disintegration and trade in South-eastern Europe," Cahiers de la Maison des Sciences Economiques j04031, Université Panthéon-Sorbonne (Paris 1).
    13. Peter Egger, 2005. "On the Impact of Transportation Costs on Trade in a Multilateral World," Southern Economic Journal, John Wiley & Sons, vol. 71(3), pages 592-606, January.
    14. Rudolph, Stephan, 2009. "The gravity equation with micro-founded trade costs," Dresden Discussion Paper Series in Economics 11/09, Technische Universität Dresden, Faculty of Business and Economics, Department of Economics.
    15. Markus Brueckner & Ngo Van Long & Joaquin L. Vespignani, 2020. "Non-Gravity Trade," Globalization Institute Working Papers 388, Federal Reserve Bank of Dallas.
    16. Shahbaz Nasir & Kaliappa Kalirajan, 2016. "Information and Communication Technology-Enabled Modern Services Export Performances of Asian Economies," Asian Development Review, MIT Press, vol. 33(1), pages 1-27, March.
    17. James E. Anderson & Douglas Marcouiller, 2002. "Insecurity And The Pattern Of Trade: An Empirical Investigation," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 342-352, May.
    18. Yilmazkuday, Hakan, 2009. "Distribution of Consumption, Production and Trade within the U.S," MPRA Paper 16361, University Library of Munich, Germany.
    19. Kareem, Fatima Olanike & Martinez-Zarzoso, Inmaculada & Brümmer, Bernhard, 2016. "Fitting the Gravity Model when Zero Trade Flows are Frequent: a Comparison of Estimation Techniques using Africa's Trade Data," GlobalFood Discussion Papers 230588, Georg-August-Universitaet Goettingen, GlobalFood, Department of Agricultural Economics and Rural Development.
    20. Felix Groba, 2014. "Determinants of trade with solar energy technology components: evidence on the porter hypothesis?," Applied Economics, Taylor & Francis Journals, vol. 46(5), pages 503-526, February.

    More about this item

    Keywords

    Comparative advantage; trade costs; transportation costs;
    All these keywords.

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mie:wpaper:500. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: FSPP Webmaster (email available below). General contact details of provider: https://edirc.repec.org/data/riumius.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.