2022 Volume 52 Issue 2 Pages 215-230
In the conventional trade models such as the Ricardian and Heckscher-Ohiln model, the law of comparative advantage prevails when a country exports with an autarkic relative price is lower than the other countries when there are no market failures. Introduction of public intermediate goods generally disturbs the general equilibrium of the economy depending on how much is supplied, so the law of comparative advantage as described may not hold under free trade. When a public intermediate goods the type of defined by Meade（1952） are introduced into a traditional neoclassical trade model, the production possibility frontier has a shape strictly convex to the origin. This may bring forth of a pattern of trade that does not follow the law of comparative advantage even with reasonable behavior of the government to supply the public intermediate goods. This paper considers two different ways of supplying the public intermediate goods that a government adopts in a Ricardian model with a public intermediate goods. Then we show that, while both ways are efficient, but one way maintains the law of comparative advantage whereas the other one does not. However, both ways assure the gains from trade.
JEL Classifications:R1, A5
