Comparative Advantage with and without Gains from Trade

Andrea Maneschi

Review of International Economics, 1998, vol. 6, issue 1, 120-28

Abstract: In 1980, Deardorff, and Dixit and Norman, generalized the law or comparative advantage to show that the value of net imports at autarky prices (or "DDN index") is nonnegative, so that net imports are correlated with autarky prices. The DDN index can be decomposed into the sum of (i) the equivalent variation of gains from trade, and (ii) the difference in GNP at autarky prices between autarky and trade. Several examples are given of classical and neoclassical economies where (i) or (ii) can be zero. Hence gains from trade are sufficient but not necessary for the existence of comparative advantage. Copyright 1998 by Blackwell Publishing Ltd.

Date: 1998
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