Comparative Advantages and Possible Coordination Failure: An Explanatory Note

Most trade models today are specializations of, or variations on, the general-equilibrium model of Arrow-Debreu-McKenzie, where no one's action is conditioned on others' previous action. Although that model does not deal with free riding, trade literature has achieved much for a world under stable environment. Evidence from Asian high-tech sectors and findings of dynamic games argue for an augmented analysis of world trade, involving new goods, new suppliers, and rapidly changing technology. Here comparative advantage depends on industrial policy to control free riding, encourage pioneers and launch industries. Distinctly different industrial policies shape international specialization among the nations. Copyright 2009 The Authors. Journal compilation 2009 Blackwell Publishing Ltd.