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  3. American Economic Review
  4. March 2005
  5. Wealth as a Determinant of Comparative Advantage

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

Wealth as a Determinant of Comparative Advantage

  • José Wynne
American Economic Review
vol. 95, no. 1, March 2005
(pp. 226–254)
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Abstract

This paper shows that a country's wealth can be an important determinant of comparative advantage when access to credit differs across sectors of the economy. Wealthier nations exhibit a comparative advantage toward goods produced in sectors facing more severe financial imperfections. These sectors are typically populated by small firms. Empirically this paper documents that these sectors are also labor intensive. Consequently, this theory partially offsets traditional sources of comparative advantage and offers an explanation for Trefler's missing trade mystery and the Leontief paradox. Furthermore, the theory makes the relation between trade and income distribution endogenous.

Citation

Wynne, José. 2005. "Wealth as a Determinant of Comparative Advantage." American Economic Review, 95 (1): 226–254. DOI: 10.1257/0002828053828626

Additional Materials

JEL Classification

  • E44 Financial Markets and the Macroeconomy
  • F11 Neoclassical Models of Trade
  • F14 Empirical Studies of Trade
  • F16 Trade and Labor Market Interactions
  • F43 Economic Growth of Open Economies