Postprint version. Published in Journal of International Economics, Volume 64, Issue 1, October 1, 2004, pages 169-193. Copyright © 2003 Elsevier. The definitive version is available at http://dx.doi.org/10.1016/S0022-1996(03)00080-1.
NOTE: At the time of publication, the author Eric Fisher was not yet affiliated with Cal Poly.
This paper examines whether comparative advantage is the long-run outcome of an evolutionary process in the open economy. It formalizes the notion that natural selection eliminates inefficient firms and thus leads to stable and perhaps efficient patterns of world trade. Instead of assuming the existence of a Walrasian auctioneer, we study two simple matching processes that coordinate trade between firms. Our central result is that specialization according to comparative advantage, with the larger country possibly incompletely specialized, is the unique evolutionarily stable state of the world economy.