Comparative Advantage With and Without Gains from Trade

In 1980, Deardorff, and Dixit and Norman, generalized the law of comparative advantage to show that the value of net imports at autarky prices (or “DDN index”) is nonnegative, so that net imports are correlated with autarky prices. The DDN index can be decomposed into the sum of (i) the equivalent v...

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Bibliographic Details
Published in:Review of international economics 1998-02, Vol.6 (1), p.120-128
Main Author: Maneschi, Andrea
Format: Article
Language:English
Subjects:
Comparative advantage
Economic models
Economic theory
Imports
International economics
Prices
Self sufficiency
Studies
Trade
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Summary:In 1980, Deardorff, and Dixit and Norman, generalized the law of comparative advantage to show that the value of net imports at autarky prices (or “DDN index”) is nonnegative, so that net imports are correlated with autarky prices. The DDN index can be decomposed into the sum of (i) the equivalent variation of gains from trade, and (ii) the difference in GNP at autarky prices between autarky and trade. Several examples are given of classical and neoclassical economies where (i) or (ii) can be zero. Hence gains from trade are sufficient but not necessary for the existence of comparative advantage.
ISSN:0965-7576
1467-9396
DOI:10.1111/1467-9396.00091