Competition or Comparative Advantage: What Drives Cross Border Mergers and Acquisitions?

The theory of comparative advantage explains the upsurge of cross border mergers and acquisitions (CBMAs) in the era of reform led trade liberalization. This paper tests the theory of comparative advantage for CBMAs by firms belonging to a developing country, viz. India. Using count data the paper also shows that CBMAs have occurred in country and sector specific waves. This implies in developing countries, it is competition rather than comparative advantage which drives CBMAs. However, the paper finds that occurrence of the country specific wave and sector specific wave are negatively affected by favourable outward FDI policy.

     

Hicks theorem: Effects of technological improvement in the Ricardian model

Using the Ricardian model, we formally prove Hicks' [Hicks, John (1953), “An Inaugural Lecture,” Oxford Economic Papers 5(2), 117–135.] insight into the effects of technological improvement: uniform technological improvement at home benefits all countries (or at least does not hurt); export-biased technological improvement at home benefits the foreign country (or at least does not hurt), but import-biased technological improvement at home can hurt the foreign country as long as the comparative advantage is not reversed. We then study optimal strategies of technological improvement and show that for a small country it is optimal to choose export-biased technological improvement. For a large country, it is optimal to improve technology in both sectors at a rate proportional to the consumers' expenditure share. Therefore, if the expenditure share of the import sector is larger than that of the export sector, a large country will choose a relatively import-biased technological improvement, which will hurt its trading partner.     

Technology for Sale

Free trade in commodities typically leads to gains for all participating countries. These gains can be augmented by trade in productive factors if returns differ between countries. But such trade would not exhaust potential gains if technological knowledge, not embedded in productive factors, differs between countries. Using a Ricardian model this paper shows how a country which has an absolute advantage based on technology in both commodities in a two-commodity world can gain by selling, giving, or even bribing the other country into using the advanced technology in the other country's export sector. If each country has an absolute advantage in the single commodity it produces, an exchange of technology for the other commodity can nonetheless lead to extra gains for both countries.     

The Cosine-Shaped Pattern of Innovations and Technological Advantages： Theory and Evidence

Using data from 24 OECD countries, we find that the relationship between a country＇s R＆D investment and technological advantage in a sector （measured by the country＇s labor productivity of the sector relative to the rest of the world） is non-monotonic. In particular, for countries whose technology levels are much lower or higher than the rest of the world in a sector, their sectoral R＆D investment declines as their advantages in the sector improve; for counties with middle technology levels, the opposite is true. Extending the Eaton and Kortum framework, we develop a static model to theoretically analyze the relationship between R＆D investment and technological advantages. We show that when the research efficiency in a sector is sufficiently elastic with respect to the sectoral technological advantage, a country＇s R＆D investment increases with its technological advantage, and vice versa.     

International Trade and Manufacturing Employment: Is India following the Footsteps of Asia or Africa?

The Indian manufacturing sector has rapidly increased its integration with the world economy since the 1991 trade reforms. We examine whether trade integration created or destroyed jobs in the Indian manufacturing sector, and compare India's employment outcomes with four other countries—Bangladesh, Kenya, South Africa, and Vietnam. We find that the impact of international trade on manufacturing employment seems to be similar to those found for the two African countries rather than the two Asian countries, a surprising result for a country with an apparent comparative advantage in labor-intensive manufacturing goods, and a large excess supply of unskilled labor.     

Advantages of backwardness and forwardness with shifting comparative advantage

This paper develops a multi-sector endogenous innovation model that is able to account for the dynamics of comparative advantage of each sector within the economy. The model in this paper assumes that two kinds of learning effects exist in R&D: advantages of backwardness and forwardness. It is shown that if the economy is divided into advanced and backward sectors, in the latter sectors, the advantage of backwardness dominates, leading to cyclic repetition of comparative advantage. However, in the former sectors, the advantage of forwardness becomes more significant, so comparative advantage among these sectors stabilizes. Thus, the direction of learning spillovers has a critical effect on the dynamics of comparative advantage. Given this result, it is shown that only R&D policies for the marginal sector are effective in facilitating economic growth. If a decision is made to facilitate R&D investment within advanced sectors, R&D taxes, rather than subsidies, should be imposed on this marginal sector. Moreover, it is shown that trade liberalization does not affect the intrinsic dynamics of comparative advantage among surviving sectors in the economy if the locus of this marginal sector does not change significantly after trade liberalization.     

A Neo-Heckscher–Ohlin Model of Trade with Endogenous Production Patterns*

We propose a Neo-Heckscher–Ohlin (HO) model of trade that combines comparative endowment advantage, comparative technological advantage, international capital mobility and trade costs. Using an inframarginal approach, we produce a partition of the exogenous parameter space in a host of parameter value subsets that demarcate the various equilibrium patterns of production and trade. The results are startling! They suggest that production within the diversification cone – a key assumption of the Heckscher–Ohlin theory that is required for its core propositions (such as factor price equalisation) to hold – may only prevail on the razor's edge, or under exceptional circumstances. In addition, our findings nominate a mechanism by which improvements in transaction efficiency facilitate international trade thereby stimulating cross-country division of labour. Contrary to other generalisations of the Heckscher–Ohlin (such as the various derivatives of the Kemp–Jones model of trade), our model does not assume a purely Ricardian character: comparative endowment advantage may determine the pattern of trade even in the presence of opposing technological differences, as long as total factor productivity coefficients adjusted for transaction efficiency and factor intensity do not confer unambiguous comparative (technological) advantage. Still, ‘intensity-efficiency’-adjusted comparative technological advantage supersedes factor endowments in determining the flow of trade.     

Power laws and comparative advantage

Using a comprehensive international trade data set we document empirical Power Laws (PLs) for the distribution of the interaction between countries as measured by revealed comparative advantage. Using the recently developed estimator by Gabaix and Ibragimov (2011), we find strong evidence in favour of PLs along the time, country and sector dimension for three different levels of data aggregation. This finding is not predicted by any of the existing trade theories. The estimated PL exponents characterizing the distribution of revealed comparative advantage are stable over time but differ between countries and sectors. These differences are related empirically to country and sector characteristics, including population size, Gross Domestic Product (GDP) and factor intensities.     

Access to credit and comparative advantage

Access to external funds is crucial for the entry and expansion of entrepreneurial firms and the sectors they predominantly arise in. This paper reports three important results. First, comparative advantage is shaped by factor endowments as well as fundamental determinants of corporate finance. In particular, a larger equity ratio of firms and tough governance standards relax financing constraints, lead to entry of firms at the lower bound of the productivity distribution and create an endogenous comparative advantage in sectors where entrepreneurial firms are clustered. Second, a small degree of protection in the constrained sector can raise a country's welfare by relaxing financing constraints if terms‐of‐trade effects are small. Third, a small degree of protection of the financially dependent industry in a financially underdeveloped country might even raise world welfare.     

电子信息产业国内价值链省域比较优势测度及空间差异研究

为应对后疫情时代全球电子信息产业加剧的“比较优势陷阱”,中国亟需通过国内价值链省域比较优势的互补协同提升整体国际竞争力。在价值链产品内,基于垂直专业化分工框架,兼顾增值能力与劳动生产率两个维度,使用非竞争型投入占用产出模型,设计一个评测国家内部区域电子信息产业真实比较优势的新指标。结果表明,东部沿海省域比较优势强度与广度最为显著,内陆省域比较优势集中于上游能源型部门;制造业部门比较优势凸显,服务业部门比较优势相对薄弱;比较优势高省域集中度与低省域集中度的产业部门中,均存在整体比较优势强弱差异,其中,高省域集中度产业部门比较优势强度更高。     

Financial markets, the pattern of industrial specialization and comparative advantage: Evidence from OECD countries

Due to underlying technological and organizational differences, industries differ in their need for external finance. Since services provided by the financial sector are largely immobile across countries, the pattern of industrial specialization should be influenced by the level of financial development. Among OECD countries we find a strong causal effect of the financial sector on industrial specialization. Further, the financial sector is a source of comparative advantage in a way consistent with the Hecksher-Ohlin-Vanek model. Results are also presented on which aspects of financial systems are important for specialization and comparative advantage.     

Exports,capabilities, and industrial policy in India

An extensive literature argues that India’s manufacturing sector has underperformed, and that the country has failed to industrialize; in particular, it has failed to take advantage of its labor–abundant comparative advantage. India’s manufacturing sector is smaller as a share of GDP than that of East Asian countries, even after controlling for GDP per capita. Hence, its contribution to overall GDP growth is modest. Without greater participation of the secondary sector, the argument goes, the country will not be able to develop and become a modern economy. Standard arguments blame the “license-permit raj”, the small-scale industrial policy, and the labor laws. All these were part of the industrial policy regime instituted after independence. This regime favored the heavy-machinery subsector. We argue that despite its shortcomings and misallocations, the bias towards machinery, metals, chemicals, and other capital- and skilled labor-intensive products allowed Indian manufacturing to accumulate a wide range of capabilities. We show that India’s manufacturing sector is more diversified and sophisticated than one would expect given the country’s income per capita. This positions India well to continue expanding its exports of other sophisticated products. India’s failure, however, lies in not being able to diversify into labor-intensive sectors and generate the type of structural transformation seen in China.     

FOREIGN ENTRY INTO U.S. SERVICE INDUSTRY BY TAKEOVERS AND THE CREATION OF NEW FIRMS

We study the relation between foreign entry in U.S. service sector industries and the revealed comparative advantage of the investing country using U.S. Bureau of Economic Analysis firm‐level data on all foreign takeovers and new foreign‐owned firms from 1998 to 2008. We find foreign acquisitions in the service sector are in industries of U.S. comparative advantage while new foreign firms are in industries of investing country's comparative advantage. This suggests that foreign acquisitions in the service sector are not directly related to foreign investors' competitiveness in the industry of investment. In contrast foreign investors in new service sector firms come from countries with a competitive edge in the industries of investment. We also find that foreign investors of new service sector firms are from Organization for Economic Co‐operation and Development (OECD) countries with a comparative disadvantage in royalties and trademarks. (JEL F21, F23, G34)     

大国综合优势:中国经济竞争力的一种新诠释——兼与林毅夫教授商榷

中国是一个地区经济技术发展不平衡的"大国",由"多元"和"转型"的特征形成了一种大国综合优势。这种优势不是单纯的比较优势,它可以转化为竞争优势,可以促进产业结构升级。从大国综合优势出发,可以较好地发展大国的产业竞争力、企业竞争力和外贸竞争力。大国综合优势超越了比较优势,成为诠释中国经济竞争力、制定经济发展战略的客观依据。     

论比较优势与自生能力的关系

资源禀赋的比较优势并不是一国的产业竞争力和企业自生能力的充分必要条件。一国尽管有资源禀赋的比较优势 ,但若缺乏技术优势和竞争优势 ,该国企业就不可能有自生能力 ;而如果一国存在交易效率的比较优势和规模经济 ,即使该国没有资源禀赋的比较优势 ,企业也具有自生能力     

All-pay war

We study a model of conflicts and wars in which the outcome is uncertain not because of luck on the battlefield as in standard models, but because countries lack information about their opponent. In this model expected resource levels and production and military technologies are common knowledge, but realized resource levels are private information. Each country decides how to allocate its resources to production and warfare. The country with the stronger military wins and receives aggregate production. In equilibrium both comparative and absolute advantages matter: a larger resource share is allocated to warfare by the country with a comparative advantage in warfare at relatively low realized resource levels, and by the country with an absolute disadvantage in warfare at relatively high realized resource levels. From an ex-ante perspective the country with a comparative advantage in warfare is more likely to win the war unless its military potential is much lower.     

Why will Trump lose the trade war?

ABSTRACT

The escalating U.S.–China trade conflicts have increasingly shadowed the outlook of the world economy. The Trump administration aims to achieve its strategic goals including reducing current account deficits, promoting the U.S. manufacturing sector, and curbing Chinese high-tech industries by waging the trade war against China. This paper argues that the current account deficits and the declining manufacturing sector in the U.S. are mainly driven by its internal structural factors, such as low saving rates, high labor costs, and rising service sector, rather than by the import competition from China. Moreover, the trade war further deteriorates the U.S. current account deficits and erode its comparative advantage, and it forces China to invest more in technological innovation and human capital, and thus promote its progress in high-tech industries. Thus, the U.S. will not be able to achieve its strategical goals and eventually lose the trade war.     

Product Space,Potential Comparative Advantages and Export Technological Complexity

To investigate the evolution process of comparative advantage and the factors affect this process is an important topic, and for developing exporting countries, it is even more important to see what factors will promote them to export more technological complex products. In this paper, we utilise the theory of product space raised by Hausmann and others and modify the indicators of product proximity, product path and product density in this theory. We also utilise the method raised by Rodrick to calculate the product and country‐level export technological complexity. Based on a multinational panel data set, we show that if a country's exported products with higher product density or higher product path also have higher technological complexity, then in the short term, the country's overall export technological complexity tend to be increased, and in the long term, the effect of distribution of the path of technological complexity of exports is more significant.     

Comparative Advantage and Heterogeneous Firms

This paper examines how country, industry, and firm characteristics interact in general equilibrium to determine nations' responses to trade liberalization. When firms possess heterogeneous productivity, countries differ in relative factor abundance, and industries vary in factor intensity, falling trade costs induce reallocations of resources both within and across industries and countries. These reallocations generate substantial job turnover in all sectors, spur relatively more creative destruction in comparative advantage industries than in comparative disadvantage industries, and magnify ex ante comparative advantage to create additional welfare gains from trade. The improvements in aggregate productivity as countries liberalize dampen and can even reverse the real-wage losses of scarce factors.     

The Long-run Trade Pattern in a Growing Economy

We analyze the determinants of the trade pattern in a two-country growing economy. The long-run trade pattern depends on the structure of the absolute advantage as well as the comparative advantage, because the absolute advantage determines the terms of trade and the value of the marginal product of capital which affect the growth rate in our model. Moreover, we find that opening trade reduces or removes the difference in the growth rates of the two countries when the country lagging in the growth rate has a comparative advantage in a consumption commodity. Received June 18, 2001; revised version received July 16, 2002 Published online: April 30, 2003