GENERAL
EQUILIBRIUM ESTIMATES OF THE GAINS FROM TRADE ARISING FROM COMPARATIVE
ADVANTAGE:
THE CASE OF JAPAN, PART II
Daniel M. Bernhofen and John
C. Brown[1]
Department of Economics
Clark University, USA
September 5, 2001
Much of the faith that
economists have in the gains to society from being part of an open trading
regime is rooted in the analysis of the static gains from trade arising from
comparative advantage. In fact, the proposition that a country is able to
obtain a higher level of real income if it engages in international trade than
if it operates in a state of autarky is considered to be “one of the crown
jewels of the economics profession” (Rodrik, 1998, p. 3). Although the
theoretical case for the gains from trade is well-established, hard empirical
evidence supporting the gains from trade is difficult to find.
This paper exploits Japan’s
dramatic opening in 1859 after 200 years of self-imposed autarky as a natural
historical experiment to estimate the effect of international trade on the
country’s real income at the time. The empirical analysis is rooted in a
general equilibrium framework that links the economy’s gains from trade to the
pattern of trade arising from comparative advantage. The paper builds on the authors
prior research (Bernhofen and Brown, 2001), which has established evidence for
the assertion that Japan’s trading pattern shortly after its opening up was in
accord with the prediction of Deardorff’s (1980) general formulation of
comparative advantage.
The theoretical section of
the paper links Deardorff’s measure of comparative advantage (i.e. the inner
product between net exports and autarky prices) to the equivalent variation
(EV) measure of welfare. On the empirical side, the measure of comparative
advantage is constructed by matching detailed autarky price data for 1851-1853
with trade data for 1868-1872. Using Japan’s autarky price vector as the price
base, the paper provides estimates of income gains to the Japanese economy that
would have occurred if the economy had been engaged in international trade
during its autarky period of 1851-1853. The paper provides an assessment of the
relative magnitude of the gains from trade by relating the EV measure of
welfare to newly constructed estimates
of Japan’s GDP during its autarky period
Keywords: gains from trade estimates,
comparative advantage, Japanese economy.
JEL classifications: F11,
F14,
[1] Address for Correspondence: Daniel M. Bernhofen, Department of Economics, Clark University, Worcester, MA 01610, USA. Phone: (508)-793-7185. Fax: (508)-793-8849. Email: dbernhofen@clarku.edu.