Government, trade and comparative advantage, revisited

Abstract

This study conducts a detailed analysis of the production possibility frontier (PPF) in an economy with two goods, each produced using labour and a specific factor as inputs, and public infrastructure, which has positive externalities on the production of each good. We show that if the elasticity of a specific factor input into production is sufficiently small, the PPF has a concave-convex-concave shape. Although our model is similar to the one developed in 1992 by Richard H. Clarida and Ronald Findlay, this possibility was overlooked in their analysis and it can generate trade patterns that are against the law of comparative advantage. Nevertheless, trade is always gainful and, as in the existing studies, trade openness increases the provision of public infrastructure in a country exporting goods whose productivity is highly dependent on infrastructure. We also examine the relationship between factor endowments and comparative advantage. Résumé. Nouveau regard sur le gouvernement, le commerce et l'avantage comparatif .Cette étude fait une analyse détaillée de la courbe des possibilités de production (CPP) dans une économie qui produit deux types de biens, chacun étant produit à l'aide d'une main-d'oeuvre et d'un facteur précis qui agissent comme intrants, et d'une infrastructure publique qui présente des effets externes positifs sur la production de chaque bien. Nous montrons que si l'élasticité d'un facteur de production précis est suffisamment faible, la CPP présente une forme concave-convexe-concave. Notre modèle est semblable à celui développé en 1992 par Richard H. Clarida et Ronald Findlay, mais cette possibilité n'a pas été prise en compte dans leur analyse, ce qui peut générer des structures commerciales qui vont à l'encontre de la loi de l'avantage comparatif. Néanmoins, le commerce est toujours lucratif et, comme dans les études existantes, l'ouverture aux échanges augmente l'offre d'infrastructure publique dans un pays exportateur dont la

Symmetry-breaking and trade in neoclassical economies with domestic policies having diminishing effect to production scale

“…They accommodated a government policy into the specific-factor model inheriting the Heckscher–Ohlin spirit and discussed comparative advantage in trade. Succeeding their analysis, Tawada, Suga, & Yanase (2022) pointed out a possibility that the country’s PPF becomes concave-convex-concave. Chatterjee’s analysis strongly suggests that a symmetry-breaking equilibrium appears in this case.…”

Infrastructure and International Trade Theory:Multiple Equilibria, Trade Patterns, and Nonlinear Dynamics

“…In the following subsections, I present such studies, that is, studies based on models similar to the existing literature but deriving more complex results. Tawada et al (2022) show that in the presence of productivity effects of public intermediate goods, a country's trade pattern may not follow the law of comparative advantage. Their model is similar to that of Clarida and Findlay (1992), in which two private goods, Tech and Wheat, are produced by using two private inputs, labor and a specific factor (capital in the Tech sector and land in the Wheat sector).…”

“…The first topic is the possibility of trade patterns that do not follow the law of comparative advantage, which states that countries are likely to import what is expensive and export what is cheap, evaluated at autarky prices. Tawada, Suga, and Yanase (2022) challenge this principle by showing that owing to the nonconvex production set caused by the productivity effects of public infrastructure, a country that has a comparative advantage in a good may import that good. I briefly describe their model and the essence of their findings in Section 3.1.…”

“…Although the production functions are assumed to exhibit constant returns to scale in the private inputs, the public input has a positive production externality in the form of "creation of atmosphere" (Meade, 1952), which can generate nonconvexity of the production set. More specifically, Tawada et al (2022) show that if the elasticity of a specific factor input into production is sufficiently small, the production possibility frontier (PPF) has a concaveconvexconcave shape. This is shown in Figure 1(a), where T and W denote the output of Tech and Wheat, respectively, with the maximum outputs of the respective goods, T max and W max .…”

“…Tawada et al (2022) discuss that the key factors are the elasticity of specific factors in the production function, the elasticity of public 16) SeeTawada et al (2022) for details.…”