An Empirical Assessment of the Comparative Advantage Gains from Trade: Evidence from Japan

Abstract

We provide an empirical assessment of the comparative advantage gains from trade argument. We use Japan's nineteenth-century opening up to world commerce as a natural experiment to answer the following counterfactual: "By how much would real income have had to increase in Japan during its final autarky years of 1851-1853 to afford the consumption bundle the economy could have obtained if it were engaged in international trade during that period?" Using detailed historical data on trade flows, autarky prices, and Japan's real GDP, we obtain upper bounds on the gains from trade of about 8 to 9 percent of Japan's GDP.

Trade Theory with Numbers: Quantifying the Consequences of Globalization

“…This is the approach followed by Bernhofen and Brown (2005). They exploit a unique quasi-natural experiment: the opening up of Japan in 1858.…”

“…Under perfect competition, one can show that the gains from trade are weakly lower than the difference between the vector of consumption in the trade equilibrium and the vector of consumption in the autarky equilibrium, both evaluated at autarky prices, which is itself lower than the opposite of the vector of net exports in the trade equilibrium, also evaluated at autarky prices. Since Bernhofen and Brown (2005) have direct access to autarky prices in Japan in 1858 as well as net exports in subsequent years, they can compute an upper-bound of the gains from trade by assuming perfect competition, and nothing more. They find upper-bounds between 5.4% and 9.1% of Japan's GDP depending on the trade equilibrium they focus on.…”

The Empirics of General Equilibrium Trade Theory: What Have We Learned?

“…Bernhofen and Brown (2010) revisit the natural experiment of Japan to test (14). Since Bernhofen and Brown (2005) have already provided evidence that Japan experienced gains from trade, as discussed in section 2, we already know that the data environment fulfils the critical assumption of the theory. As a result, there is something at stake in testing (14) since a rejection could not be explained by unmet assumptions.…”

“…A more rigorous treatment of the gains from trade relates the inner product to the Slutsky compensation measure of welfare, which is defined as the increase in income which would allow the economy to move from autarky to free trade consumption when both are valued at autarky prices. However, as stressed in Bernhofen and Brown (2005), since autarky and free trade are observed at different points in time, the comparison involves a counterfactual. In the case of Japan it involves a comparison between Japan"s actual consumption point C …”

Wie vorteilhaft ist internationaler Handel?

“…Das heißt nicht mehr und nicht weniger, als dass man von vornherein die Gültigkeit einer bestimmten Theorie unterstellt. Im Fall von Bernhofen und Brown (2005) ist es das verallgemeinerte Modell komparativer Vorteile von Deardorff (1980); ihr kontrafaktischer Vergleich für das "Autarkieexperiment" Japans ergibt Wohlfahrtsgewinne von 5 bis 9 Prozent des Autarkie-Inlandsprodukts.…”