GEP Research Paper 05/30
The Empirics of Comparative Advantage: Overcoming the Tyranny of Non-Refutability
Daniel M. Bernhofen
Abstract
I assess the empirical evidence on comparative advantage. I argue that the Heckscher-Ohlin-Vanek (H-O-V) relationship is not a refutable general equilibrium proposition. Consequently, the empirical Heckscher-Ohlin literature has been suffering from the tyranny of nonrefutability . The trade governing principle of comparative advantage, the Ricardo-Haberler-Deardorff (R-H-D) theorem, yields a refutable general equilibrium prediction about the pattern of international trade and allows for a theory-based assessment of the magnitude of the gains from trade. The recent experimental evidence on Japan 's 19 th century opening up to world trade provides a strong case for the hypothesis that comparative advantage governed Japan 's international trade in its early trading years. The aggregate gains from that trade are estimated to be no larger than 9 % of Japan 's GDP.
Issued in October 2005.
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