Can market size outweigh adverse comparative advantage?

Abstract

This paper investigates the roles of comparative advantage and market size in the international location of manufacturing production. Building on the conventional Helpman and Krugman (1985) general equilibrium framework, our analysis extends the present literature by incorporating both effects in the same model, while allowing trade costs to vary almost continuously from autarky to free trade. The main result of our exercise is that market size effects offset comparative advantage if countries have similar factor proportions. A large country with a slight comparative disadvantage in manufacturing production may thus be a net exporter of manufactures. A small country with the same comparative disadvantage would be a net importer of manufactures. When countries are very dissimilar in their relative factor endowments, land-abundant countries specialize in the production of food, irrespective of market size, if manufactures are a labour-intensive sector. Labour-rich countries of any size are manufacture cores. However, land-abundant countries with large markets can sustain a domestic manufacturing industry until trade costs are very low, and in some cases only specialize in agriculture at free trade.Trade Liberalization, Market Size, Factor Proportions, Location Of Industries, Comparative Advantage, Market Access,

Desempenho Comercial Da Indústria De Maquinas E Implementos Agrícolas No Brasil

“…Em 1995, a relação era 0.37 em implementos agrícolas, enquanto para bens manufaturados (excluindo sidenirgicos) era 0.27. E o impacto de custo-transporte é tanto maior quanto menores os retornos internos de escala (GOTTSCHALK, 2002). De fato, medido pela relação faturamento/emprego, os retornos internos de escala nesta indústria eram bem menores, R$ 99,610.10, relativamente à média do setor de bens de capital, R$ 169,146.30.''…”

Adaptability and Firm Performance

“…The results might help draw a contrast that could lead to consequential managerial implications (Botchaway, Gooddall, Noon, and Lemon, 2002;Gottschalk, 2002;Nieminen, Larimo, and Springer, 2001).…”