Chapter 6A Dynamic Global Trade Model With Four Sectors: Food, Natural Resources, Manufactured Goods and Labour

Hannah M. Fry, Alan G. Wilson and Frank T. Smith

6.1 Introduction

In economics and policy, it is important to understand the mechanisms of international trade, both in analysing existing links and in testing the impacts of, for example, changing technologies and network resilience. Ideally, this would be done on the basis of input–output models for each of the 200 or so countries, each of which would include import and export flows by sector and country of origin or destination, respectively. This can be done in theory, for example by using the methods of Wilson (1970) as applied in an interregional context by Rho et al. (1989). However, the data sources are to say the least imperfect, and it is an enormous task to assemble what is known in these terms.

An objective of research in these areas, therefore, is to create a model of national economies and trade flows that is feasible in scale and capable of replicating the principle phenomena of the full system. In recent years, several such models have been presented with varying success. Gravity models, for example, which concentrate on the influence of spatial structure have been validated empirically but may not take comparative advantage into account. The alternative Heckscher–Ohlin model of Ohlin (1935), which is based on comparative advantage, is capable of handling country-specific capital and labour markets, but ...

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