Discussion Paper No.1605

Abstract :
We propose a new linkage between comparative advantage and transportation costs by incorporating shipping-service trade into a continuum-of-good Ricardian model. In contrast to a simple Ricardian model, comparative advantage in supplying goods is prescribed not only by a given distribution of production technology but also by the trade pattern of shipping services. This complex structure leads to an unintuitive result that a technical improvement in shipping may reduce the number of export goods. Moreover, it is shown that a country importing shipping services may not be able to gain from trade in shipping services.

Keywords : Transportation costs, Shipping-service trade, Comparative advantage, Gains from trade

JEL code: F11, F61