Journal Article

What Goods Do Countries Trade? A Quantitative Exploration of Ricardo's Ideas

Arnaud Costinot, Dave Donaldson and Ivana Komunjer

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 79, issue 2, pages 581-608
Published in print April 2012 | ISSN: 0034-6527
Published online September 2011 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1093/restud/rdr033
What Goods Do Countries Trade? A Quantitative Exploration of Ricardo's Ideas

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The Ricardian model predicts that countries should produce and export relatively more in industries in which they are relatively more productive. Though one of the most celebrated insights in the theory of international trade, this prediction has received little attention in the empirical literature since the mid-1960s. The main reason behind this lack of popularity is the absence of clear theoretical foundations to guide the empirical analysis. Building on the seminal work of Eaton and Kortum (“Technology, Geography, and Trade”, Econometrica, 70, 1741–1779 2002), we offer such foundations and use them to quantify the importance of Ricardian comparative advantage. In the process, we also provide a theoretically consistent alternative to Balassa's (1965, “An Empirical Demonstration of Classical Comparative Cost Theory”, Review of Economics and Statistics, 45, 231–238) well-known index of “revealed comparative advantage”.

Keywords: Ricardian model; Comparative advantage; Productivity; Commodity pattern of trade; F10; F11

Journal Article.  13671 words. 

Subjects: International Trade

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