The gains from trade revisited |
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| Authors: | Kwok Tong Soo |
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| Institution: | 1. College of Materials & Environmental Engineering, Hangzhou Dianzi University, Hangzhou 310027, China;2. State Key Laboratory of Silicon Materials, Cyrus Tang Center for Sensor Materials and Applications, School of Materials Science & Engineering, Zhejiang University, Hangzhou 310027, China;1. Amsterdam School of Economics, University of Amsterdam, Valckenierstraat 65-67, 1018 XE Amsterdam, The Netherlands;2. Tinbergen Institute, Gustav Mahlerplein 117, 1082 MS Amsterdam, The Netherlands;1. Centre for Studies in Social Sciences, India;2. GEP, Nottingham, United Kingdom;3. The Hong Kong Polytechnic University, Hong Kong |
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| Abstract: | This paper revisits the issue of whether countries gain more from trading with countries that are similar to themselves, or with countries that are different. A model based on relative endowment and technological differences across countries is developed. The main result is that a country may experience a region of increasing gains from trade as its trading partner becomes more similar to itself in terms of relative endowments. The model also predicts that for countries with sufficiently similar relative endowments, both factors of production may experience gains from trade. |
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