Abstract: Comparative Advantage and Productivity Gap under Scarce Resources: The British and American Rubber Manufacture Industries Compared, 1870-1910

Felipe Tâmega Fernandes

Abstract

Despite evidences that the British might have possessed some comparative advantage in rubber manufacturing, productivity measures suggest that, at the turn of the twentieth century, Britain lagged behind. Two questions then emerge: 1) Why was rubber manufacturing productivity higher in the United States? 2) What then explains British comparative advantage? It is argued in the paper that standardization of demand and the move toward mass production in the United States explain the productivity gap that was partly offset by the easier access Britain had to the main input in the industry: crude rubber. It is further shown that the British position in the crude rubber market relied on possession of (rubber-producing) colonies and naval power that allowed that country to extract monopoly rents from its main competitor. This favorable position in the crude rubber market allowed the country to influence the quality and prices of the main input in its competitor's industry, at least marginally.