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Capital heterogeneity as a source of comparative advantage: Putty-clay technology in a ricardian model

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  • Ishise, Hirokazu

Abstract

This paper considers how heterogeneity in capital goods affects international trade patterns, and shows a novel source of comparative advantage: the magnitude of heterogeneity in capital goods. Capital goods are heterogeneous in their vintage and productivity, and due to capacity constraints, only productive capital goods are activated in the equilibrium. Through this selection, the distribution of capital goods determines industry-level productivity: industry-level productivity is higher in an industry with relatively larger variation in capital goods. Hence in a perfectly competitive two-country, two-good, two-factor equilibrium, the industry has Ricardian comparative advantage. An extension of the model, which includes fixed trade cost, describes a sorting situation in which the most productive production units (which are generally newer vintage) export, the moderately productive units serve the domestic market, and the least productive units (older) do not operate.

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  • Ishise, Hirokazu, 2016. "Capital heterogeneity as a source of comparative advantage: Putty-clay technology in a ricardian model," Journal of International Economics, Elsevier, vol. 99(C), pages 223-236.
    • Handle: RePEc:eee:inecon:v:99:y:2016:i:c:p:223-236
    DOI: 10.1016/j.jinteco.2015.11.004
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    Cited by:

    1. Pelli, Martino & Tschopp, Jeanne, 2017. "Comparative advantage, capital destruction, and hurricanes," Journal of International Economics, Elsevier, vol. 108(C), pages 315-337.
    2. Weiwei Xiong & Liang Yan & Teng Wang & Yuguo Gao, 2020. "Substitution Effect of Natural Gas and the Energy Consumption Structure Transition in China," Sustainability, MDPI, vol. 12(19), pages 1-20, September.
    3. Pelli, Martino & Tschopp, Jeanne & Bezmaternykh, Natalia & Eklou, Kodjovi M., 2023. "In the eye of the storm: Firms and capital destruction in India," Journal of Urban Economics, Elsevier, vol. 134(C).
    4. Martino Pelli & Jeanne Tschopp & Natalia Bezmaternykh & Kodjovi M Eklou, 2020. "In the Eye of the Storm: Firms, Putty-Clay and Capital Destruction," Diskussionsschriften dp2012, Universitaet Bern, Departement Volkswirtschaft.

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    More about this item

    Keywords

    Ricardian trade model; Putty-clay technology; Vintage capital; Capacity utilization rate; Sorting in destination;
    All these keywords.

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production

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