The Location of Comparative Advantages on the Basis of Fundamentals Only

P. Mohnen, T. ten Raa

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We propose a new way to locate the comparative advantages of two economies linked by international trade. We construct a competitive benchmark based only on the fundamentals of the two economies: endowments, preferences and technologies. The direction of trade is endogenously determined by a linear program with an input-output core. The factor contents of that trade are compared with factor endowments to test the heckscher-ohlin model in the presence of different technologies and preferences. We can also evaluate the gains of free bilateral trade. The model is applied to a customs union between europe and canada. The heckscher-ohlin factor abundance specialization hypothesis is supported by the data.
Original languageEnglish
Pages (from-to)93-108
JournalEconomic Systems Research
Issue number1
Publication statusPublished - 1 Jan 2001

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