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Empirical Methods in International Trade

Essays in Honor of Mordechai Kreinin

Edited by Michael G. Plummer

Internationalization of the world economy has made trade a key factor in the growth potential of nearly every nation’s economy. Hence, economists have become increasingly interested in the determinants of international trade and competitiveness. Empirical Methods in International Trade captures the many aspects of this trend in globalization through practical techniques well-founded in economic theory. The authors, comprising some of the most influential applied international economists of their generation, use cutting-edge models to develop empirical approaches to critical aspects of economic interchange. These approaches are developed and explained carefully with the goal of making them accessible to a wide audience.
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Chapter 3: Changes in the Relative International Competitiveness of the United States During the Past Two Decades

Dominick Salvatore


Dominick Salvatore 1. INTRODUCTION The chapter examines the relative international competitiveness of the United States vis-a-vis Europe, Japan and the rest of Asia in all manufactured goods ` and in high-technology products, and how this has changed over the past two decades. International competitiveness is a crucial aspect of all modern economies, but a great deal of disagreement exists on how to measure it (see Salvatore, 1992 and 1993; McKibbin and Salvatore, 1995). One way to measure international competitiveness is by implicit or revealed comparative advantage. Another method is by the index of international competitiveness, such as that calculated yearly by the Institute for International Management (IMD), and the third by the change in labor productivity. Each of these different measures of international competitiveness has some shortcomings. They are also not directly comparable and provide somewhat different results. This chapter presents, evaluates and compares the results of these three methods of measuring the international competitiveness of nations. Section 2 of this chapter examines the meaning and importance of the concept of international competitiveness itself. Section 3 discusses measuring the international competitiveness of nations and regions by revealed comparative advantage, Section 4 by measuring international competitiveness directly, and Section 5 by improvements in labor productivity. Section 6 concludes. 2. THE IMPORTANCE OF INTERNATIONAL COMPETITIVENESS AND ECONOMIC RESTRUCTURING In a 1994 article, Paul Krugman stated that international competitiveness is an irrelevant and dangerous concept because nations simply do not compete with 35 36 New approaches to empirical trade analysis each other the...

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