On the origins of comparative advantage
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JIEdivision_finalwithproofs.pdf
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Author(s)
Costinot, Arnaud
Date Issued
January 2009
Journal
Journal of International Economics
Publisher
Elsevier
Citation
Costinot, Arnaud. “On the origins of comparative advantage.” Journal of International Economics 77.2 (2009): 255-264.
Version
Author's final manuscript
Abstract
This paper proposes a simple theory of international trade with endogenous productivity differences across countries. The core of our analysis lies in the determinants of the division of labor. We consider a world economy comprising two large countries, with a continuum of goods and one factor of production, labor. Each good is characterized by its complexity, defined as the number of tasks that must be performed to produce one unit. There are increasing returns to scale in the performance of each task, which creates gains from specialization, and uncertainty in the enforcement of each contract, which create transaction costs. The trade-off between these two forces pins down the size of productive teams across sectors in each country. Under free trade, the country where teams are larger specializes in the more complex goods. In our model, it is the country where the product of institutional quality and human per worker capital is larger. Hence, better institutions and more educated workers are complementary sources of comparative advantage in the more complex industries.
Subjects
comparative advantage
division of labor
human capital
institutional quality
complexity
MIT Department
Massachusetts Institute of Technology. Department of Economics
Terms of Use
Article is made available in accordance with the publisher's policy and may be subject to US copyright law. Please refer to the publisher's site for terms of use.
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DOI of Published Version
http://dx.doi.org/10.1016/j.jinteco.2009.01.007
