Sources of international comparative advantage : further evidence

Abstract

In his seminal work, Sources of International Comparative Advantage: Theory and Evidence (1984), Leamer (1984) used cross-country data to the mid 1970s to establish the linkage between trade and resource endowments and to identify sources of international comparative advantage and the changing roles that they play in determining patterns of international trade. The principal objective of this thesis is to examine to what extent the trends identified by Leamer in earlier data continued into the 1980s. The reasons for doing this are twofold: using updated data, to study the hypothesis that the structure of trade is explained by the availability of resources; and to reveal changing patterns of international comparative advantage over a new period of time. The thesis looks at what resource supplies have determined comparative advantage and asks whether there has been a structural change in patterns of trade and resource endowments over time. The main argument of the thesis is that cross-country differences in resource endowments still play an important role in detennining patterns of trade. The argument is developed in three ways. First, trade and resource data, in the form of trade dependence profIles and resource abundance profIles, are found to support the view that there is, in general, a linkage between patterns of trade and resource endowments, as implied by the Heckscher-Ohlin theorem. Second, empirical study of the factor content of trade in a cross-country setting, based on the Heckscher-Ohlin-Vanek (HOV) model, reveals that sign patterns of trade in factor services can provide another criterion for measuring the relative abundance of resource endowments. The empirical results reinforce the evidence provided by the trade dependence and resource abundance profiles of 61 economies and shed light on the controversial Leontief Paradox. Third, econometric analysis using Bayesian econometric methods shows that 10 trade aggregates (two primary products, four crops and four manufactured goods) are, in general, well explained by 11 resource endowments (capital, three categories of labour, four categories of land, plus coal, oil and minerals). The results suggest that structural change took place in the patterns of trade and resource endowments in the period 1965 to 1988, and consequently that shifts in sources of international comparative advantage occurred during this period. While the results largely support the main argument of the thesis, they also suggest that a substantial amount of trade in commodities, particularly manufactured commodities, may be explained by factors that go beyond the neoclassical paradigm. Finally, the thesis discusses implications for Asia-Pacific economies of the major findings.