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Comparative Advantage, Exchange Rates, and G-7 Sectoral Trade Balances

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  • Mr. Stephen S. Golub

Abstract

This paper uses a Ricardian framework to clarify the role of microeconomic and macroeconomic factors governing the time series and cross-section behavior of sectoral trade balances. Unit labor costs and trade balances are calculated for several sectors for the seven major industrial countries. The time series and cross-section variation in sectoral unit labor costs is decomposed into relative productivity, wage differentials, and exchange rate variations. The main findings are that changes over time in sectoral trade balances, especially for the United States and Japan, are quite well explained by the evolution of unit labor cost, suggesting that trade patterns conform to comparative advantage. The cross-section results are, however, less conclusive.

Suggested Citation

  • Mr. Stephen S. Golub, 1994. "Comparative Advantage, Exchange Rates, and G-7 Sectoral Trade Balances," IMF Working Papers 1994/005, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1994/005
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    Citations

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    Cited by:

    1. Carlin, Wendy & Glyn, Andrew & Van Reenen, John, 2001. "Export Market Performance of OECD Countries: An Empirical Examination of the Role of Cost Competitiveness," Economic Journal, Royal Economic Society, vol. 111(468), pages 128-162, January.
    2. Arash Habibi, 2019. "Non-linear impact of exchange rate changes on U.S. industrial production," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 8(1), pages 1-17, December.
    3. Nowak-Lehmann D., Felicitas & Vollmer, Sebastian & Martínez-Zarzoso, Inmaculada, 2008. "Does comparative advantage make countries competitive? A comparison of China and Mexico," University of Göttingen Working Papers in Economics 74, University of Goettingen, Department of Economics.
    4. Ahmet Faruk Aysan & Yavuz Selim Hacihasanoglu, 2007. "Investigation on the Determinants of Turkish Export-Boom in 2000s," Working Papers 2007/19, Bogazici University, Department of Economics.
    5. Munehisa Kasuya & Toshihiro Okada, 2003. "The Effects of Technology Changes on the Sectoral Trade Patterns and the Import Penetration Ratio," Bank of Japan Working Paper Series Research and Statistics D, Bank of Japan.
    6. Hiroaki Sasaki, 2011. "Export of Deindustrialization and Anti-Balassa-Samuelson Effect: The Consequences of Productivity Growth Differential," Discussion papers e-10-015, Graduate School of Economics Project Center, Kyoto University.
    7. Avik Chakrabarti, 2000. "Does Trade Cause Inequality?," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 25(2), pages 1-21, December.
    8. Edwards, Lawrence & Golub, Stephen S., 2004. "South Africa's International Cost Competitiveness and Exports in Manufacturing," World Development, Elsevier, vol. 32(8), pages 1323-1339, August.
    9. Lawrence Edwards & Volker Schoer, 2002. "Measures Of Competitiveness: A Dynamic Approach To South Africa'S Trade Performance In The 1990s," South African Journal of Economics, Economic Society of South Africa, vol. 70(6), pages 1008-1046, September.
    10. Brigitte Granville & Dominik Nagly, 2015. "Conflicting Incentives for Public Support for EMU," Manchester School, University of Manchester, vol. 83, pages 142-157, December.
    11. Peter Hooper & Elizabeth Vranlovich, 1995. "International comparisons of the levels of unit labor costs in manufacturing," International Finance Discussion Papers 527, Board of Governors of the Federal Reserve System (U.S.).
    12. Brigitte Granville & Dominik Nagly, 2014. "Conflicting incentives for the public to support the EMU," Working Papers 50, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.
    13. Louis D. Johnston & Menzie D. Chinn, 1996. "How well is the United States competing? A comment on Papadakis," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 15(1), pages 68-81.
    14. Brigitte Granville & Dominik Nagly, 2013. "Determinants of relative bargaining power in monetary unions," Working Papers 47, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.
    15. Stephen S. Golub & Janet Ceglowski, 2002. "South African Real Exchange Rates And Manufacturing Competitiveness," South African Journal of Economics, Economic Society of South Africa, vol. 70(6), pages 1047-1075, September.
    16. Menzie Chinn, 2006. "A Primer on Real Effective Exchange Rates: Determinants, Overvaluation, Trade Flows and Competitive Devaluation," Open Economies Review, Springer, vol. 17(1), pages 115-143, January.
    17. Özler, Sule & Taymaz, Erol & YIlmaz, Kamil, 2009. "History Matters for the Export Decision: Plant-Level Evidence from Turkish Manufacturing Industry," World Development, Elsevier, vol. 37(2), pages 479-488, February.
    18. Menzie D. Chinn, 2005. "Doomed to Deficits? Aggregate U.S. Trade Flows Re-Examined," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 141(3), pages 460-485, October.
    19. Menzie D. Chinn, 2004. "Incomes, Exchange Rates and the US Trade Deficit, Once Again," International Finance, Wiley Blackwell, vol. 7(3), pages 451-469, December.
    20. repec:got:cegedp:74 is not listed on IDEAS

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