Content introduction：

No.E2023001

 

State Enabling and Comparative Advantages
Justin Yifu Lin^a , Xin Wang^b

^a Institute of New Structural Economics, Institute of South-South Cooperation and Development, 
National School of Development, Peking University
^b Institute of New Structural Economics, Peking University

 

Abstract: International trade plays a crucial role in driving structural transformation and fostering economic growth. However, not all countries have equally engaged in international trade. This paper argues that while theories of comparative advantage predict a country's potential to trade with others primarily based on relative production costs, the emergence of industries with low production costs can be hindered by high transaction costs. Therefore, the factors outlined in traditional theories are only sufficient to identify the presence of a "latent" comparative advantage (LCA). Transforming LCA into an "actual" comparative advantage (ACA) requires the active involvement of the state, as many factors influencing transaction costs are beyond the control of individual ˝rms. Using cross-country data, we demonstrate that most African and Latin American countries struggle to export products that align with their LCA, whereas Asian countries exhibit a smaller discrepancy between LCA and ACA. Moreover, the export structure in Asian countries shows high dynamism and evolves alongside the upgrading of their endowment structure. In contrast, most countries in Africa and Latin America experience a stagnant export structure. Additionally, the dynamics of the export structure positively correlate with the development of physical and institutional infrastructure, as well as the government's public investment. We then present a model illustrating the crucial role of the state in reducing transaction costs, thereby facilitating the conversion of LCA into ACA industries. Through proactive state engagement in infrastructure investment, barriers for production can be overcome, fostering a more conducive environment for international trade and economic growth.

Keywords: comparative advantage; infrastructure; transaction cost; facilitating state
JEL classification: F10, F11, H50, H54, O11

 

本工作论文系列是新结构经济学最新的尚未在学术期刊发表的研究成果，目的在于学术讨论与评论，并不代表北京大学新结构经济学研究院的官方意见。