The idea of comparative advantage is an essential part of every economists’ intellectual toolkit. On the 200th anniversary of the publication of “On the Principles of Political Economy and Taxation”, this column salutes David Ricardo’s achievement of setting out the theory for comparative advantage for the first time.
Douglas Irwin, 19 April 2017
Diego Daruich, William Easterly, Ariell Reshef, 16 January 2017
National trade policies have been at the heart of recent policy debates, with many calls for industrial policies to help pick winners. This column shows that while a few export goods account for the bulk of export value within each country, hyper-specialisations are very unstable, making it unlikely that industrial policy will work even in the medium run. The best policy to promote exports would be just to let entrepreneurs exploit new opportunities as they arise.
Brian Varian, 29 May 2016
Modern discussions about a country’s ‘decline in manufacturing’ are seldom meaningful. Such talk of industrialisation and deindustrialisation across the entire sector tends to ignore important variation across individual industries. This column draws lessons from the revealed comparative advantage of late-Victorian Britain – the ‘workshop of the world’. Advantage lay mainly in industries that were relatively capital-intensive and that didn’t rely on large pools of unskilled labour. Despite its resource wealth, even Britain in the first era of globalisation was at a measurable comparative disadvantage in a number of industries.
Ryohei Nakamura, 01 October 2014
Many Japanese municipalities found recent population predictions for the next 30 years rather alarming. Unfortunately, most of them do not have an effective solution to the declining population problem. This column discusses different strategies that could ignite innovation and stimulate the growth of the population. Bringing in new business, identifying their comparative advantage, and stimulating community innovation could make municipalities attractive places to settle down.
Pablo Fajgelbaum, Stephen Redding, 12 July 2014
External integration is often viewed as an important driver of economic development, but most existing studies use aggregate data. This column present evidence from a natural experiment provided by Argentina’s integration into the world markets in the late 19th century. The findings suggest that proximity to trade centres is associated with employment density, high lands rates relative to wages, and structural transformation away from agriculture.
Zhi Wang, Shang-Jin Wei, Kunfu Zhu, 16 April 2014
One common measure of trade linked international production networks is the so-called VAX ratio, i.e. the ratio of value-added exports to gross exports. This column argues that this measure is not well-behaved at the sector, bilateral, or bilateral sector level, and does not capture important features of international production sharing. A new gross trade accounting framework is proposed that can better track countries’ movements up and down global value chains.
Lindsay Oldenski, 16 October 2012
The state of the US middle class has been a key issue this election season as middle-income workers have experienced relative wage losses in the last decade. Skill-biased technology change has previously been identified as a major cause of this polarisation of wages in the US. But this column shows that there is also an empirical link between offshoring by US firms and the polarisation of the US labour market.
Julian di Giovanni, Andrei Levchenko, Jing Zhang, 02 April 2012
The late Nobel Laureate Paul Samuelson argued that if China’s productivity growth accelerates in areas where it does not currently have a comparative advantage – notably the service sector – developed countries may suffer. This column presents a multi-country, multi-sector model, and reaches the opposite conclusion: the world, including developed countries, is far better off when China’s growth favours its current comparative disadvantage sectors.
Ejaz Ghani, Arti Grover Goswami, Homi Kharas, 12 December 2011
Policymakers in both developed and developing countries now see services as the source of jobs and growth. This column argues that modern services sophistication now surpasses that of the manufacturing sector and explores the reasons why.
Jesus Felipe, Utsav Kumar, Arnelyn Abdon, 22 July 2010
This column introduces the Index of Opportunities – a ranking of countries by their capacity to undergo structural transformation and develop. It suggests countries at the bottom are in urgent need of implementing policies that lead to higher diversification and sophistication of exports.
Gary Hufbauer, Matthew Adler, 24 July 2008
A popular headline figure quantifying the US payoff from globalisation at $1 trillion per year has been criticised by Dani Rodrik and other sceptics. Here is an explanation and defence of the Peterson Institute’s big number.