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Country size and trade in intermediate and final goods
Author(s) -
Soo Kwok Tong
Publication year - 2018
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.12538
Subject(s) - monopolistic competition , intermediate good , economics , comparative advantage , division of labour , production (economics) , consumption (sociology) , competition (biology) , final good , international trade , international economics , microeconomics , market economy , monopoly , ecology , social science , sociology , biology
This paper documents a negative relationship between country size and the share of final consumption goods in total exports. A model is developed, based on the division of labour and comparative advantage, to explain this relationship. Labour is used to produce traded intermediate inputs which are used in the production of traded final goods. Large countries gain relatively more from comparative advantage than from the division of labour, while the opposite is true for small countries. As in the data, large countries export a smaller share of final goods and a larger share of intermediate goods than small countries. It is shown that the model developed in the paper yields the same results as a model based on monopolistic competition.