Comparative Advantage in (Non-)Routine Production

We illustrate a new source of comparative advantage that is generated by countries’ different ability to adjust technological change. Our model introduces substitution workers in codifiable (routine) tasks with more efficient machines, process extensively documented the labor literature, into canonical 2 × Heckscher-Ohlin model. key hypothesis reallocation across subject frictions, importance which varies country. The arrival capital-augmenting innovations triggers movement out routine tasks, and countries low market frictions become relatively abundant non-routine labor. In equilibrium, flexible specialize producing goods use intensively. document empirically ranking respect intensity their exports strongly related institutions cultural norms influence adjustment change, such as risk aversion or long-term orientation. explanatory power this mechanism for trade flows especially strong intra-EU trade.