For the private and public sector in any particular country it is crucial to know, which industries may exhibit comparative advantages, that for some reasons are not realized. This can efficiently help all current and potential actors to improve their economic strategy both at the micro- and macroeconomic level. In this paper we propose an approach of forecasting comparative advantages dynamics in foreign trade. The instrument is based on relative price differences and is efficient for countries in the process of economic liberalization. An empirical analysis based on the example of Central and East European countries confirms a good performance in the sense of predictive power of this instrument. On the example of Russia, experiencing a period of economic liberalization and with the prospect to join the WTO agreements, we demonstrate which sectors are most likely to contain comparative advantages in the near future.
We analyze the medium- and long-run effects caused by an inflow of capital into a labor-abundant country. For that purpose, we incorporate directed technical change into a Heckscher-Ohlin model with a continuum of goods. This provides a comprehensive theory explaining the dynamics of comparative advantage based on differences in effective factor endowments, i.e. factor endowments adjusted by differences in technological levels. Our model constitutes an appropriate framework for understanding, e.g., the empirically observed changes in industrial structures of Central and Eastern European countries. Furthermore, we provide a theoretical foundation for the empirical Prospective Comparative Advantage index with new insights into the future dynamics of comparative advantage. Eventually, we show the importance of research spillovers and state dependence on the process of convergence.