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Structural Transformation and Comparative Advantage: Implications for Small Open Economies
Author(s) -
Whang Unjung
Publication year - 2017
Publication title -
the world economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.594
H-Index - 68
eISSN - 1467-9701
pISSN - 0378-5920
DOI - 10.1111/twec.12398
Subject(s) - comparative advantage , economics , productivity , agriculture , transformation (genetics) , small open economy , open economy , econometrics , production (economics) , simple (philosophy) , differential (mechanical device) , economy , microeconomics , macroeconomics , international trade , engineering , exchange rate , biochemistry , chemistry , gene , ecology , philosophy , epistemology , biology , aerospace engineering
Data from the last half‐century show that revealed comparative advantage in agriculture (manufacturing) is negatively (positively) associated with the rate of decline in labour share in agriculture. Motivated by this finding, the author constructs and calibrates a simple open‐economy model, where there is learning‐by‐doing in manufacturing and industry‐supplied inputs to agricultural production. This paper focuses on the effects of comparative advantage and learning‐by‐doing on structural transformation and calibrate the model to the US and the UK data to estimate key parameters of the model. Quantitative experiments show that holding constant other factors a small difference in a country's comparative advantage can account for a large variation in structural transformation for open economies, which does not require nearly as much differential productivity growth as in closed‐economy models.