 How to apply trade theory to the German unification? Making sense of ‘comparative advantage in nothing’MPRA Paper from University Library of Munich, Germany Abstract: We derive several cases of 'comparative advantage in nothing', which can be relevant for East Germany. The simplest case with little relevance is the HO assumption of identical technologies across regions implanted into the Ricardian model. The second is the case with full employment wages leading to migration and unification in the West also within the Ricardian model. The third case is with Western wage levels and prices in the East but lower productivity in all sectors, leading to negative profits and 100% unemployment also in the Ricardian model. Fourth, independent of wage rigidities, high transport costs stemming from insufficient infrastructure may lead to having a non-traded goods sector comprised of the whole economy. Fifth, in a HO model, augmented to have a factor land and an absolute technological advantage of the West, an excess of eastern wages over productivity-adjusted western wages can lead to a tie in which the East loses its comparative advantage in labour-intensive goods. Finally, modeling a non-traded sector and perfect capital movements under the assumption of the East being a small country on the goods, capital and labour markets, too high fixed wages in the sector of traded goods may lead to no exports of goods. All people are employed in the non-traded goods sector - if the latter is not bound to the fixed wages – or emigrate. Thus there are many reasonable cases of ‘comparative advantage in nothing’ containing relevant problems of East Germany. They appear either in the form of systematic rather than accidental ties with unemployment or in the form of production concentrated in the non-traded goods sector jointly with factor movements. Keywords: Comparative advantage; wage rigidities; unemployment; non-traded goods; migration; capital movements; East Germany. (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:62129 Access Statistics for this paper More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC. |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.