The Global Productivity Distribution and Ricardian Comparative Advantage∗

This paper studies the origins of Ricardian comparative advantage. I develop an endogenous growth model where productivity differences across firms and countries emerge from R&D investment by incumbent firms with heterogeneous R&D capabilities. Less productive firms have an advantage of backwardness and spillovers depend upon the productivity frontier in each country. The theory characterizes how knowledge spillovers and learning affect the global productivity distribution, international income inequality and the growth rate. Countries with an absolute advantage in R&D, or with fewer barriers that restrict knowledge spillovers, develop a comparative advantage in industries where the advantage of backwardness is lower and where spillovers are more localized. ∗I am grateful to seminar participants in Barcelona, Bologna and the ISGEP workshop in Pescara for helpful discussions. †Centre for Economic Performance, Department of Economics, London School of Economics, Houghton Street, London, WC2A 2AE, United Kingdom. E-mail: [email protected].