On the measurement of comparative advantage
AbstractThis article shows that the distribution of the standard measure of revealed comparative advantage (RCA), which runs from 0 to 8, has problematic properties. Due to its multiplicative specification, it has a moving mean without a useful interpretation, while its distribution depends on the number of countries and industries. This article proposes an alternative, additive RCA, running from –1 to +1, with a bell-shaped distribution that centres on a mean equal to zero, independent of the classifications used. Statistical tests show the additive index to be more stable empirically too. Furthermore, the article proposes an aggregate RCA that runs from 0, when pure intra-industry trade prevails, to 1 in the case of pure inter-industry trade. Comparable conclusions hold for the location quotient (LQ), which is used as a measure for the revealed locational attractiveness of certain regions or countries for certain types of industry.
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Bibliographic InfoPaper provided by University of Groningen, Research Institute SOM (Systems, Organisations and Management) in its series Research Report with number 04C11.
Date of creation: 2001
Date of revision:
Other versions of this item:
- F14 - International Economics - - Trade - - - Empirical Studies of Trade
- R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
- C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-07-04 (All new papers)
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