Globalisation, Comparative Advantage and the Changing Dynamics of Trade
The effects of globalisation have been at the forefront of public debate in recent years, fuelled on the one hand by the large benefits of integrated markets, and on the other hand, by the detrimental adjustment effects often experienced by many economies as a result. Knowing how trade has been evolving over time and the role policy has played in this evolution are critical to understanding the globalisation debate and grasping the lessons for future policy development. The comparative advantage hypothesis has been suggested as one of the principal explanations of international trade and of the benefits associated with openness. It has also provided the intellectual underpinnings for most trade policy in the past 50 years. This book collects OECD work that builds on recent contributions to the theory and empirics of comparative advantage, putting particular emphasis on the role policy can play in shaping trade.
Comparative advantage and trade performance
Policy implications
This chapter establishes the relative importance of different sources of comparative advantage in explaining trade, with particular focus on policy and institutional factors. The policy and institutional areas shown to be important determinants of comparative advantage include physical and human capital accumulation (especially secondary and tertiary education), financial development, the business climate, as well as a number of aspects of labour market institutions. The results suggest that comparative advantage has been — and is likely to be in the future — relatively more important for North-South and South-South trade. Overall, the chapter concludes that when seeking to maintain or develop competitiveness in a certain area, it is best develop an effective broad policy approach.