Competing Gains From Trade

Clemens C. Struck and Adnan Velic

No 201909, Working Papers from School of Economics, University College Dublin

Abstract: Differences in growth rates across countries imply a strong relation between factor proportions based trade and key aggregate economic outcomes. We construct two macro-trade datasets and illustrate that this relation is rather weak in the data. We propose a simple explanation: in the presence of intra- industry trade, pronounced trade specialization patterns culminate in a loss of varieties. In a dynamic two-country model, we illustrate that the introduction of intra-industry trade overwhelmingly subdues the inter-industry trade dynamics and realigns the behavior of standard models with the empirical evidence along various dimensions. We also provide empirical support for our mechanism: labor and capital intensive goods are traded between developed and developing countries in both directions and in similar proportions in overall trade.

Keywords: Heckscher Ohlin; Armington trade; Factor proportion based trade; Comparative advantage; Dynamic two-country general equilibrium models; Feldstein-Horioka (search for similar items in EconPapers)
JEL-codes: F11 F12 F32 F41 F43 (search for similar items in EconPapers)
Date: 2019-03
New Economics Papers: this item is included in nep-int
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http://hdl.handle.net/10197/10634 First version, 2019 (application/pdf)

Related works:
Working Paper: Competing Gains From Trade (2018)
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