GEP Research Paper 08/24
Predicting the Pattern of International Trade in the Neoclassical Model: A Synthesis
Daniel M. Bernhofen
Summary
I propose a unifying framework for pattern of trade predictions in the neoclassical trade model. This allows for an intuitive interpretation of the predictions and reveals the intellectual continuity between Ricardo's original comparative advantage formulation in 1817 and the modern general equilibrium formulations.
Abstract
I propose a framework that takes a set of conceivable outcomes as the primitive and a prediction is defined by identifying a subset on the set of conceivable outcomes. This notion of predictability serves as an organizing principle for characterizing pattern of trade predictions in single economy and integrated equilibrium formulations of the neoclassical trade model. I identify allocative efficiency as the unifying subset selection criterion for the different formulations of the neoclassical trade model, ranging from Ricardo’s (1817) original comparative advantage formulation to the multi-cone Heckscher-Ohlin specification with multiple countries, goods and factors.
Issued in July 2008
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