Dynamic Comparative Advantage in International Shipbuilding: The Transition from Wood to Steel

Can temporary initial input cost advantages have a long-run impact on the spatial distribution of production and trade? I study this question in the context of the international shipbuilding industry during the transition from wood to metal ship production (1850-1912). Input price advantages gave Britain an early lead in metal shipbuilding, while the U.S. and Canada specialized in wood ship production. However, after 1890, Britain's initial price advantages disappeared. By comparing production patterns on the Atlantic Coast of North America, which faced British competition, to the Great Lakes, which were isolated from competition, I show that British competition substantially reduced the ability of North American producers to transition to metal ship production. I also exploit additional sources of variation to show how government protection and support moderated these effects for some Atlantic Coast producers, allowing them to survive the demise of wood shipbuilding. Finally, I provide evidence that the mechanism driving the persistence of Britain's lead was the development of large pools of skilled craft workers. These results shed light on the role of past conditions in influencing current production and trade patterns and with implications for the use of industrial policy and tariff protection.