Empirical Tests of Comparative Advantage

In Free Trade Under Fire, Douglas Irwin points to two examples of large exogenous trade policy shocks that allow us to calculate the static benefits promised by the theory of comparative advantage:

In 1859, a bit of gunboat diplomacy by Commodore Matthew Perry ended two centuries of Japanese autarky and exposed it to foreign trade. Japanese prices converged to world prices, so the country became an exporter of silk and tea while an importer of cotton and woolen goods. Estimates of these gains from trade are as high as nine percent. (Daniel Bernhofen & John Brown, “A Direct Test of the Theory of Comparative Advantage: The Case of Japan,” JPE 2004, pdf; “An Empirical Assessment of the Comparative Advantage Gains from Trade: Evidence from Japan,” AER 2005)

In 1807, President Thomas Jefferson ordered an economic embargo to punish Britain for interfering with American ships on the high seas. This termination of trade raised the domestic price of imported goods by 33 percent and lowered the domestic price of exported goods by 27 percent. The static welfare loss was around five percent. (Douglas Irwin, “The Welfare Cost of Autarky: Evidence from the Jeffersonian Trade Embargo, 1807–09,” RIE 2005)