Unpacking sources of comparative advantage A quantitative approach

This paper develops an approach for quantifying the importance of different sources of comparative advantage by extending the Eaton and Kortum (2002) model to predict industry trade flows In this framework comparative advantage is determined by the interaction of country and industry characteristics with countries specializing in industries whose production needs they can best meet with their factor endowments and institutional strengths I estimate the model parameters using (i) OLS and (ii) a simulated method of moments procedure that accounts for the prevalence of zeros in the bilateral trade data I apply the model to explore various quantitative questions such as how much distance Ricardian productivity factor endowments and institutions each matter for country welfare in the global trade equilibrium (C) 2010 Elsevier B V All rights reserved