Evolving Comparative Advantage, Structural Change, and the Composition of Trade

Abstract

In this paper I explore how the evolution of comparative advantage can explain the changes in the compositions of exports and output that occurred in South Korea during its growth miracle period. From 1960 to 1995 manufacture’s share in both exports and output increased, with the increase in manufacture’s share in exports almost twice as large as the increase in manufacture’s share in output. I embed a dynamic, multicountry model of trade into a three-sector model of structural change where agriculture, manufacturing, and services are complementary in both consumption and production. I measure productivity growth, in each sector for each country, using a Solow-type accounting procedure. I feed the productivity growth rates into the model and find that the increase in manufacture’s share in exports and output are explained by a shift in comparative advantage. The model also matches other aspects of the compositions: the declines in both agriculture’s and service’s share in exports, as well as the decline in agriculture’s share in output.