Can Comparative Advantage Explain the Growth of US Trade?

Alejandro Cuñat, University of Essex, CEP and CEPR
Marco Maffezzoli, Università Bocconi and IGIER

Abstract

We present a dynamic comparative advantage model in which moderate reductions in import tariffs can generate sizable increases in trade volumes over time. A fall in tariffs has two effects. First, for given factor endowments, it raises the degree of specialization, leading to a larger volume of trade in the short run. Second, it raises the factor price of each country's abundant factor, leading to diverging paths of relative factor endowments and a rising degree of specialization. A simulation exercise shows that a fall in tariffs produces a disproportional increase in the trade share of output as in the data.