Comparative advantage


Steve Redding, Henry Overman and Tony Venables - have all looked at how comparative advantage has evolved endogenously over time. Empirical evidence reveals substantial changes in patterns of specialisation, which can only be partly explained by factor endowments.

The determinants of patterns of trade and the international location of production is one of the most central questions to international trade theory. Recent empirical work has sought to shed light on these issues and to examine the role of both factor endowments and the considerations emphasized by the new economic geography literature. In the presence of increasing returns to scale and transport costs, large markets will attract a disproportionate share of production. With intermediate goods an important input in production, downstream and upstream industries will, other things equal, tend to co-locate. Recent theoretical research has also emphasized the way in which patterns of comparative advantage evolve endogenously over time. Empirical evidence reveals substantial changes in patterns of specialisation, which can only be partly explained by factor endowments, leaving an important role for changes in technology and economic geography considerations.

The CEP's research in this area includes:

Midelfart-Knarvik, K.-H., H.G. Overman, and A.J. Venables (2001) 'Comparative Advantage and Economic Geography: Estimating the Location of Production in the EU', CEPR Discussion Paper 2618.
Proudman, J. and S. Redding (2000) 'Evolving Patterns of International Trade', Review of International Economics, 8(3), August, 373-96. [Only available to those with access to Ingenta].
Redding, S. and M. Vera-Martin (2001) 'Factor Endowments and Production in European Regions', CEP Discussion Paper 501.

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