Comparative Advantage, Exchange Rates, and G-7 Sectoral Trade Balances

Author/Editor:

Stephen S. Golub

Publication Date:

January 1, 1994

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper uses a Ricardian framework to clarify the role of microeconomic and macroeconomic factors governing the time series and cross-section behavior of sectoral trade balances. Unit labor costs and trade balances are calculated for several sectors for the seven major industrial countries. The time series and cross-section variation in sectoral unit labor costs is decomposed into relative productivity, wage differentials, and exchange rate variations. The main findings are that changes over time in sectoral trade balances, especially for the United States and Japan, are quite well explained by the evolution of unit labor cost, suggesting that trade patterns conform to comparative advantage. The cross-section results are, however, less conclusive.

Series:

Working Paper No. 94/5

Subject:

Notes:

Also published in Staff Papers, Vol. 41, No. 2, June 1994.

English

Publication Date:

January 1, 1994

ISBN/ISSN:

9781451842111/1018-5941

Stock No:

WPIEA0051994

Format:

Paper

Pages:

50

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