Essays on the relative price of tradables and the composition of trade

• Main Author: Sposi, Michael
• Other Authors: Ravikumar, B.
• Format: Others
• Language: English
• Published: University of Iowa 2012
• Subjects: International trade; Relative prices; Structural change; Economics
• Online Access: https://ir.uiowa.edu/etd/3388; https://ir.uiowa.edu/cgi/viewcontent.cgi?article=3333&context=etd

This dissertation consists of two chapters. The first chapter addresses the role of trade barriers in explaining differences in the relative prices of tradables across countries. The second chapter assesses the quantitative importance of changes in comparative advantage in explaining the changes in the compositions of exports and output in South Korea during its growth miracle. In the first chapter I quantitatively address the role of trade barriers in explaining the cross-country distribution of the price of nontradables relative to tradables. Relative prices of nontradables are higher in rich countries than in poor countries. The standard explanation for this is due to Balassa (1964) and Samuelson (1964), where, in each country, the relative price of nontradables is equal to the inverse of relative productivity, and relative productivity is higher in poor countries. I construct a multi-country model of trade in which countries face asymmetric trade barriers. There are many tradable goods and trade barriers determine the cross-country pattern of specialization across tradable goods. The realized pattern of specialization determines measured productivity in the tradables sector, which determines relative prices. Existing trade barriers account for half of the difference in relative prices between rich and poor countries. In the second chapter, I explore how the evolution of comparative advantage can explain the changes in the compositions of exports and output that occurred in South Korea during its growth miracle. From 1960 to 1995 manufacture's share in both exports and output increased. I embed a dynamic, multi-country model of trade into a three-sector model of structural change where agriculture, manufactures, and services are complementary in both consumption and production. I measure productivity growth, in each sector for each country, using a growth accounting procedure. I feed the productivity growth rates into the model and find that the increase in manufacture's share in exports and output are explained by a shift in comparative advantage. The model also matches other aspects of the compositions: the declines in both agriculture's and service's share in exports, and the decline in agriculture's share in output. Finally, the model tracks the composition of output for other countries.