The evolution of comparative advantage: Measurement and welfare implications

• Published in: Journal of monetary economics Vol. 78; pp. 96 - 111
• Main Authors: Levchenko, Andrei A., Zhang, Jing
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01-04-2016; Elsevier Sequoia S.A
• Subjects: Comparative advantage; Exports; Manycountries; Productivity; Ricardian models of trade; Sectoral TFP; Studies; Technological change; Welfare; Welfare economics; Ricardian models of trade; Sectoral TFP; Welfare; Technological change
• ISSN: 0304-3932; 1873-1295
• DOI: 10.1016/j.jmoneco.2016.01.005

Using novel estimates of sectoral total factor productivities for 72 countries across 5 decades we provide evidence of relative productivity convergence: productivity grew systematically faster in initially relatively less productive sectors. These changes have had a significant impact on trade volumes and patterns, and a non-negligible welfare impact. Had productivity in each country׳s manufacturing sector relative to the US remained the same as in the 1960s, trade volumes would be higher, cross-country export patterns more dissimilar, and intra-industry trade lower than in the data. Relative sectoral productivity convergence – holding average growth fixed – had a modest negative welfare impact.
•Novel sectoral total factor productivity estimates for 72 countries across 5 decades.•Productivity grew systematically faster in initially relatively unproductive sectors.•These changes had a significant impact on trade and a non-negligible welfare impact.