LABOR SKILLS AND THE UKS COMPARATIVE ADVANTAGE WITH ITS EUROPEAN-UNION PARTNERS

The paper assesses the extent and sources of the UK's comparative adva ntage within the European Union (EU). It finds that both inter-industr y and intra-industry trade are important despite clear aggregation eff ects. Having established that there is a significant degree of inter-i ndustry specialization the sources of this are analysed, using a facto r-content approach. Results are reported for aggregate factors of prod uction and, in the case of labour, by disaggregated skill categories. A key finding is that the UK's net trade with the EU is driven more by a specialization in specific types of skill than by an overall endowm ent of human capital. The results also suggest that the inter-industry specialization cannot be explained by comparative advantage alone.