Competitive versus Comparative Advantage

J. Peter Neary ()

No 200219, Working Papers from School Of Economics, University College Dublin

Abstract: I explore the interactions between comparative, competitive and absolute advantage in a two-country model of oligopoly in general equilibrium. Comparative advantage always determines the direction of trade, but both competitive and absolute advantage affect resource allocation, trade patterns and trade volumes. Competitive advantage in the sense of more home firms drives foreign firms out of marginal sectors but also makes some marginal home sectors uncompetitive. Absolute advantage in the sense of a uniform fall in home costs tends to raise home output in all sectors but also leads both countries to specialise less in accordance with comparative advantage.

Keywords: Comparative and absolute advantage; comparative and competitive advantage; exchange-rate protection; GOLE (General Oligopolistic Equilibrium); market integration (search for similar items in EconPapers)
JEL-codes: F10 F12 (search for similar items in EconPapers)
Date: 2002-08-18
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http://www.ucd.ie/economics/research/papers/2002/WP02.19.pdf First version, 2002 (application/pdf)

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Journal Article: Competitive versus Comparative Advantage (2003)
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