Proximity as a Source of Comparative Advantage

Elizaveta Archanskaia ()
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Elizaveta Archanskaia: OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po

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Abstract: This paper establishes that production unbundling has coincided with an inscreasing role of input costs in shaping the pattern of comparative advantage. I show that the wedge in the cost of the input bundle across countries in a multisectoral Ricardian model is given by a composite index of trade frictions incurred in sourcing inputs. As the cost share of inputs is sector-specific this wedge becomes source of comparative advantage whereby countries characterized by relatively high proximity to input suppliers specialize in sectors which use inputs more intensively. I find robust empirical evidence that the input cost channel has growing importance over 1995-2009. Nonetheless, consistently with the fundamental intuition of Ricardian models, the ranking of relative sectoral technology stocks still determines intersectoral specialization. Between 53-55% of intersectoral variation in relative sectoral exports is explained by technology while the input cost channel contributes 3 to 8% in the full sample, and 3 to 13% for the EU-15.

Keywords: Ricardian model; Intersectoral specialization; Trade costs (search for similar items in EconPapers)
Date: 2013-02
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