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On the measurement of comparative advantage

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  • Hoen, Alex R.

    (Groningen University)

Abstract

This 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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Paper provided by University of Groningen, Research Institute SOM (Systems, Organisations and Management) in its series Research Report with number 04C11.

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Date of creation: 2001
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Handle: RePEc:dgr:rugsom:04c11

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  1. Kunimoto, Kazutaka, 1977. "Typology of Trade Intensity Indices," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 17(2), pages 15-32, February.
  2. Thomas Vollrath, 1991. "A theoretical evaluation of alternative trade intensity measures of revealed comparative advantage," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 127(2), pages 265-280, June.
  3. Robert Ballance & Helmut Forstner & Tracy Murray, 1985. "On measuring comparative advantage: A note on Bowen’s indices," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 121(2), pages 346-350, June.
  4. Thijs Ten Raa & Pierre Mohnen, 2001. "The Location of Comparative Advantages on the Basis of Fundamentals Only," Economic Systems Research, Taylor & Francis Journals, vol. 13(1), pages 93-108.
  5. Harry Bowen, 1985. "On measuring comparative advantage: A reply and extension," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 121(2), pages 351-354, June.
  6. Jeroen Hinloopen & Charles Marrewijk, 2001. "On the empirical distribution of the Balassa index," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 137(1), pages 1-35, March.
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Cited by:
  1. Run Yu & Junning Cai & PingSun Leung, 2009. "The normalized revealed comparative advantage index," The Annals of Regional Science, Springer, vol. 43(1), pages 267-282, March.
  2. Grigori Fainštein & Aleksei Netšunajev, 2010. "Foreign Trade Patterns Between Estonia and the EU," International Advances in Economic Research, Springer, vol. 16(3), pages 311-324, August.
  3. Depetris Guiguet, Edith & García Arancibia, Rodrigo & Rossini, Gustavo, 2010. "Consistencia de indicadores de especialización en el comercio internacional. Aplicación al caso de la mantequilla en Argentina y Uruguay = Consistency of Specialization Indicators. An Application to," Revista de Métodos Cuantitativos para la Economía y la Empresa = Journal of Quantitative Methods for Economics and Business Administration, Universidad Pablo de Olavide, Department of Quantitative Methods for Economics and Business Administration, vol. 9(1), pages 85-105, June.
  4. Lotfi, Habib & Ahmadzadeh Mashinchi, Sina, 2008. "Investigating the effect of granted facilities by specialist banks to agriculture part on value added agriculture part of Iran," MPRA Paper 37979, University Library of Munich, Germany.
  5. Anil Belbase & Paras Kharel, 2009. "Competitiveness of Nepalese ready-made garments after expiry of the Agreements on Textiles and Clothing," Working Papers 7009, Asia-Pacific Research and Training Network on Trade (ARTNeT), an initiative of UNESCAP and IDRC, Canada..
  6. Shu-hen Chiang, 2009. "Location quotient and trade," The Annals of Regional Science, Springer, vol. 43(2), pages 399-414, June.
  7. Veselin Hadzhiev, 2014. "Overall Revealed Comparative Advantages," Eurasian Journal of Economics and Finance, Eurasian Publications, vol. 2(1), pages 47-53.
  8. Shinyekwa, Isaac & Othieno, Lawrence, 2011. "Uganda's revealed comparative advantage: the evidence with the EAC and China," Research Series 150474, Economic Policy Research Centre (EPRC).
  9. Ufuk Gunes Bebek, 2011. "Robustness of the Proposed Measures of Revealed Comparative Advantage," Studies in Economics 1121, Department of Economics, University of Kent.
  10. Ufuk gunes Bebek, 2011. "Consistency of the proposed additive measures of revealed comparative advantage," Economics Bulletin, AccessEcon, vol. 31(3), pages 2491-2499.
  11. Shu-hen Chiang, 2012. "Shift-share analysis and international trade," The Annals of Regional Science, Springer, vol. 49(3), pages 571-588, December.
  12. Sarker, Rakhal & Ratnesena, Shashini, 2014. "Revealed Comparative Advantage and Half-A-Century Competitiveness of Canadian Agriculture: A Case Study of Wheat, Beef and Pork Sectors," Working Papers 165675, Canadian Agricultural Trade Policy Research Network.
  13. Run Yu & Junning Cai & Matthew Loke & PingSun Leung, 2010. "Assessing the comparative advantage of Hawaii’s agricultural exports to the US mainland market," The Annals of Regional Science, Springer, vol. 45(2), pages 473-485, October.
  14. Ufuk Gunes Bebek, 2011. "Monotonicity of additive indices of revealed comparative advantage," Economics Bulletin, AccessEcon, vol. 31(2), pages 1894-1901.
  15. Rodrigo García Arancibia, 2009. "Distribución y Movilidad de la Especialización Argentina en el Comercio Mundial de Agroalimentos: Un Estudio Dinámico," Revista de Economía y Estadística, Universidad Nacional de Córdoba, Facultad de Ciencias Económicas, Instituto de Economía y Finanzas, vol. 0(1), pages 11-45, January.

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