Country size, technology, and Ricardian comparative advantage

Tomohiro Ara

Review of International Economics, 2020, vol. 28, issue 2, 497-536

Abstract: We develop a Ricardian model with heterogeneous firms in which country size and technology play a crucial role in the firm‐level variables. We show that a country with larger size and better technology exhibits higher productivity and lower price–cost margins even under assumptions of C.E.S. preferences and monopolistic competition. Welfare is higher in this country, not only due to the increased product variety but also due to increased competition in a domestic market. We also show that country size and technology impact critically on the intensive margin as well as the extensive margin in the gravity equation.

Date: 2020
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