IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/115091.html
   My bibliography  Save this paper

Country size, per-capita income, and comparative advantage: services versus manufacturing

Author

Listed:
  • Bradford, Scott C.
  • Das, Satya
  • Saha, Anuradha

Abstract

The paper develops a trade model with novel implications that richer and larger nations have a comparative advantage in manufacturing, while poorer and smaller nations have comparative advantage in services. Two forces drive these results: non-homothetic tastes that cause demand to shift toward services as income increases; and services having a higher degree of product differentiation than manufacturing, which leads larger nations to shift their production more towards manufactures. Empirical analysis using data from 2005 through 2016 finds support for the theoretical predictions: per-capita income and nation size have positive relationships with manufacturing comparative advantage indices and negative relationships with services comparative advantage indices.

Suggested Citation

  • Bradford, Scott C. & Das, Satya & Saha, Anuradha, 2022. "Country size, per-capita income, and comparative advantage: services versus manufacturing," MPRA Paper 115091, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:115091
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/115091/1/MPRA_paper_115091.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Markus Brückner & Antonio Ciccone & Andrea Tesei, 2012. "Oil Price Shocks, Income, and Democracy," The Review of Economics and Statistics, MIT Press, vol. 94(2), pages 389-399, May.
    2. Kalina Manova, 2013. "Credit Constraints, Heterogeneous Firms, and International Trade," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 80(2), pages 711-744.
    3. Justin Caron & Thibault Fally & James R. Markusen, 2021. "International Trade Puzzles: A Solution Linking Production And Preferences," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 11, pages 199-250, World Scientific Publishing Co. Pte. Ltd..
    4. Nathan Nunn, 2007. "Relationship-Specificity, Incomplete Contracts, and the Pattern of Trade," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 122(2), pages 569-600.
    5. Stephen Redding & Mercedes Vera-Martin, 2006. "Factor Endowments and Production in European Regions," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 142(1), pages 1-32, April.
    6. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-959, December.
    7. Daron Acemoglu & Simon Johnson & James A. Robinson & Pierre Yared, 2008. "Income and Democracy," American Economic Review, American Economic Association, vol. 98(3), pages 808-842, June.
    8. David H. Romer & Jeffrey A. Frankel, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, vol. 89(3), pages 379-399, June.
    9. Timo Boppart, 2014. "Structural Change and the Kaldor Facts in a Growth Model With Relative Price Effects and Non‐Gorman Preferences," Econometrica, Econometric Society, vol. 82, pages 2167-2196, November.
    10. Andrei A. Levchenko, 2007. "Institutional Quality and International Trade," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 74(3), pages 791-819.
    11. Satya P. Das & Anuradha Saha, 2015. "Growth of business services: A supply‐side hypothesis," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 48(1), pages 83-109, February.
    12. Kiminori Matsuyama, 2000. "A Ricardian Model with a Continuum of Goods under Nonhomothetic Preferences: Demand Complementarities, Income Distribution, and North-South Trade," Journal of Political Economy, University of Chicago Press, vol. 108(6), pages 1093-1120, December.
    13. Diego Comin & Danial Lashkari & Martí Mestieri, 2021. "Structural Change With Long‐Run Income and Price Effects," Econometrica, Econometric Society, vol. 89(1), pages 311-374, January.
    14. Head, Keith & Mayer, Thierry & Ries, John, 2009. "How remote is the offshoring threat?," European Economic Review, Elsevier, vol. 53(4), pages 429-444, May.
    15. Pablo D. Fajgelbaum & Amit K. Khandelwal, 2016. "Measuring the Unequal Gains from Trade," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(3), pages 1113-1180.
    16. Piyabha Kongsamut & Sergio Rebelo & Danyang Xie, 2001. "Beyond Balanced Growth," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 68(4), pages 869-882.
    17. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
    18. Mr. Prakash Loungani & Mr. Saurabh Mishra & Mr. Chris Papageorgiou & Ke Wang, 2017. "World Trade in Services: Evidence from A New Dataset," IMF Working Papers 2017/077, International Monetary Fund.
    19. Bussolo Maurizio & de Hoyos Rafael E. & Medvedev Denis & van der Mensbrugghe Dominique, 2012. "Global Growth and Distribution: China, India, and the Emergence of a Global Middle Class," Journal of Globalization and Development, De Gruyter, vol. 2(2), pages 1-29, January.
    20. Brian Hindley & Alasdair Smith, 1984. "Comparative Advantage and Trade in Services," The World Economy, Wiley Blackwell, vol. 7(4), pages 369-390, December.
    21. Noguer, Marta & Siscart, Marc, 2005. "Trade raises income: a precise and robust result," Journal of International Economics, Elsevier, vol. 65(2), pages 447-460, March.
    22. Donnelly, William A. & Johnson, Kyle & Tsigas, Marinos E. & Ingersoll, David, 2004. "Revised Armington Elasticities of Substitution for the USITC Model and the Concordance for Constructing a Consistent Set for the GTAP Model," Working Papers 15861, United States International Trade Commission, Office of Economics.
    23. Scott French, 2017. "A Gravity-Based Revealed Comparative Advantage Estimator," Discussion Papers 2017-05, School of Economics, The University of New South Wales.
    24. Feenstra, Robert C. & Hong, Chang & Ma, Hong & Spencer, Barbara J., 2013. "Contractual versus non-contractual trade: The role of institutions in China," Journal of Economic Behavior & Organization, Elsevier, vol. 94(C), pages 281-294.
    25. Keith Head & John Ries, 2001. "Increasing Returns versus National Product Differentiation as an Explanation for the Pattern of U.S.-Canada Trade," American Economic Review, American Economic Association, vol. 91(4), pages 858-876, September.
    26. Kiminori Matsuyama, 2009. "Structural Change in an Interdependent World: A Global View of Manufacturing Decline," Journal of the European Economic Association, MIT Press, vol. 7(2-3), pages 478-486, 04-05.
    27. Ana Cecília Fieler, 2011. "Nonhomotheticity and Bilateral Trade: Evidence and a Quantitative Explanation," Econometrica, Econometric Society, vol. 79(4), pages 1069-1101, July.
    28. Hanson, Gordon H. & Lind, Nelson & Muendler, Marc-Andreas, 2015. "The Dynamics of Comparative Advantage," CAGE Online Working Paper Series 252, Competitive Advantage in the Global Economy (CAGE).
    29. Gary P. Sampson & Richard H. Snape, 1985. "Identifying the Issues in Trade in Services," The World Economy, Wiley Blackwell, vol. 8(2), pages 171-182, June.
    30. Bergstrand, Jeffrey H, 1989. "The Generalized Gravity Equation, Monopolistic Competition, and the Factor-Proportions Theory in International Trade," The Review of Economics and Statistics, MIT Press, vol. 71(1), pages 143-153, February.
    31. Dornbusch, Rudiger & Fischer, Stanley & Samuelson, Paul A, 1977. "Comparative Advantage, Trade, and Payments in a Ricardian Model with a Continuum of Goods," American Economic Review, American Economic Association, vol. 67(5), pages 823-839, December.
    32. Matsuyama, Kiminori, 2015. "The home market effect and patterns of trade between rich and poor countries," LSE Research Online Documents on Economics 86292, London School of Economics and Political Science, LSE Library.
    33. Ana Maria Santacreu & Heting Zhu, 2018. "Manufacturing and Service Sector Roles in the Evolution of Innovation and Productivity," Economic Synopses, Federal Reserve Bank of St. Louis, issue 2, pages 1-3.
    34. Markus Brueckner & Daniel Lederman, 2015. "Trade Openness and Economic Growth: Panel Data Evidence from Sub-Saharan Africa," Economica, London School of Economics and Political Science, vol. 82, pages 1302-1323, December.
    35. Head, Keith & Mayer, Thierry & Ries, John, 2009. "How remote is the offshoring threat?," European Economic Review, Elsevier, vol. 53(4), pages 429-444, May.
    36. Helpman, Elhanan, 1981. "International trade in the presence of product differentiation, economies of scale and monopolistic competition : A Chamberlin-Heckscher-Ohlin approach," Journal of International Economics, Elsevier, vol. 11(3), pages 305-340, August.
    37. Bhattacharya Rudrani & Das Satya P, 2008. "Advent of Industrial Mass Production: Three Stages of Economic Development," The B.E. Journal of Macroeconomics, De Gruyter, vol. 8(1), pages 1-47, September.
    38. Jagdish N. Bhagwati, 1984. "Splintering and Disembodiment of Services and Developing Nations," The World Economy, Wiley Blackwell, vol. 7(2), pages 133-144, June.
    39. repec:hal:spmain:info:hdl:2441/10144 is not listed on IDEAS
    40. Ardelean, Adina & Lugovskyy, Volodymyr, 2010. "Domestic productivity and variety gains from trade," Journal of International Economics, Elsevier, vol. 80(2), pages 280-291, March.
    41. Bilgic, Abdulbaki & King, Stephen A. & Lusby, Aaron K. & Schreiner, Dean F., 2002. "Estimates of U.S. Regional Commodity Trade Elasticities of Substitution," Journal of Regional Analysis and Policy, Mid-Continent Regional Science Association, vol. 32(2), pages 1-20.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Das, Satya P. & Sant’Anna, Vinicios P., 2023. "Determinants of bilateral trade in manufacturing and services: A unified approach," Economic Modelling, Elsevier, vol. 123(C).
    2. Comunale, Mariarosaria & Felice, Giulia, 2022. "Trade and structural change: An empirical investigation," International Economics, Elsevier, vol. 171(C), pages 58-79.
    3. Kiminori Matsuyama, 2019. "Engel's Law in the Global Economy: Demand‐Induced Patterns of Structural Change, Innovation, and Trade," Econometrica, Econometric Society, vol. 87(2), pages 497-528, March.
    4. Hartmut Egger & Simone Habermeyer, 2019. "Nonhomothetic preferences and rent sharing in an open economy," CESifo Working Paper Series 7522, CESifo.
    5. Logan T Lewis & Ryan Monarch & Michael Sposi & Jing Zhang, 2022. "Structural Change and Global Trade," Journal of the European Economic Association, European Economic Association, vol. 20(1), pages 476-512.
    6. Hartmut Egger & Simone Habermeyer, 2022. "How preferences shape the welfare and employment effects of trade," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 158(3), pages 815-853, August.
    7. Mariarosaria Comunale & Giulia Felice, 2019. "An empirical investigation of the relationship between trade and structural change," Bank of Lithuania Working Paper Series 62, Bank of Lithuania.
    8. Nunn, Nathan & Trefler, Daniel, 2014. "Domestic Institutions as a Source of Comparative Advantage," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 263-315, Elsevier.
    9. Kiminori Matsuyama, 2015. "The Home Market Effect and Patterns of Trade between Rich and Poor Countries," Discussion Papers 1519, Centre for Macroeconomics (CFM).
    10. Daruich, Diego & Easterly, William & Reshef, Ariell, 2019. "The surprising instability of export specializations," Journal of Development Economics, Elsevier, vol. 137(C), pages 36-65.
    11. Scott L. Baier & Amanda Kerr & Yoto V. Yotov, 2018. "Gravity, distance, and international trade," Chapters, in: Bruce A. Blonigen & Wesley W. Wilson (ed.), Handbook of International Trade and Transportation, chapter 2, pages 15-78, Edward Elgar Publishing.
    12. Lidia Smitkova, 2018. "Does Openness Matter for Structural Change?," 2018 Meeting Papers 257, Society for Economic Dynamics.
    13. Costinot, Arnaud & Rodríguez-Clare, Andrés, 2014. "Trade Theory with Numbers: Quantifying the Consequences of Globalization," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 197-261, Elsevier.
    14. Dorothee Hillrichs & Gonzague Vannoorenberghe, 2021. "Recovering Within-Country Inequality From Trade Data," LIDAM Discussion Papers IRES 2021014, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    15. Dominick Bartelme & Arnaud Costinot & Dave Donaldson & Andres Rodriguez-Clare, "undated". "The Textbook Case for Industrial Policy: Theory Meets Data," Working Papers 675, Research Seminar in International Economics, University of Michigan.
    16. Ourens, Guzmán, 2017. "Uneven growth in the extensive margin: explaining the lag of agricultural economies," CEPREMAP Working Papers (Docweb) 1704, CEPREMAP.
    17. Justin Caron & Thibault Fally & James Markusen, 2021. "Per capita income and the demand for skills," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 12, pages 251-268, World Scientific Publishing Co. Pte. Ltd..
    18. Guimaraes, Bernardo & Sheedy, Kevin D., 2024. "Institutional specialization," Journal of International Economics, Elsevier, vol. 150(C).
    19. Clemens Struck & Adnan Velic, 2017. "Automation, New Technology, and Non-Homothetic Preferences," Trinity Economics Papers tep1217, Trinity College Dublin, Department of Economics.
    20. Bernardina Algieri & Antonio Aquino & Marianna Succurro, 2022. "Trade Specialisation and Changing Patterns of Comparative Advantages in Manufactured Goods," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 8(3), pages 607-667, November.

    More about this item

    Keywords

    trade in services; trade in manufacturing; revealed comparative advantage; national product differentiation; non-homothetic tastes;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F19 - International Economics - - Trade - - - Other
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • L80 - Industrial Organization - - Industry Studies: Services - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:115091. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.