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Comparative Advantage, Exchange Rates, and G-7 Sectoral Trade Balances
Author: Mr. Stephen S. Golub
Series:
IMF Working Papers
Volume/Issue:
Volume 1994: Issue 005
Language:
English
Publication Date:
01 Jan 1994
DOI:
https://doi.org/10.5089/9781451842111.001
ISBN:
9781451842111
ISSN:
1018-5941
Pages:
50
Keywords:
WP; sectoral trade balances; cost data; trade balance variation; value added; transportation cost; capital cost; trading pattern; time-series behavior of trade balances; trade pattern; unit labor cost; vis-à-vis Japan; U.S.-Japan trade; cost producer; Labor costs; Trade balance; Manufacturing; Comparative advantage; Wages; North America; Northern Europe
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund