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Comparative Advantage, the Rank-size Rule, and Zipf's Law

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  • Jeroen Hinloopen

    ()
    (Universiteit van Amsterdam)

  • Charles van Marrewijk

    ()
    (Erasmus Universiteit Rotterdam)

Abstract

Using a comprehensive international trade data set we investigate empirical regularities (known as Zipf’s Law or the rank-size rule) for the distribution of the interaction between countries as measured by revealed comparative advantage. Using the recently developed estimator by Gabaix and Ibragimov (2006) we find strong evidence in favor of the rank-size rule along the time, country, and sector dimension for three different levels of data aggregation. The estimated power exponents that characterize the distribution of revealed comparative advantage are stable over time but differ between countries and sectors. These differences are related empirically to country and sector characteristics, including population size, GDP, and factor intensities.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 06-100/1.

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Date of creation: 06 Nov 2006
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Handle: RePEc:dgr:uvatin:20060100

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Related research

Keywords: Revealed comparative advantage; Balassa index; rank-size rule; Zipf’s Law; power law; Pareto distribution;

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References

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  1. Xavier Gabaix & Rustam Ibragimov, 2006. "Log(Rank-1/2): A Simple Way to Improve the OLS Estimation of Tail Exponents," Harvard Institute of Economic Research Working Papers 2106, Harvard - Institute of Economic Research.
  2. Masahisa Fujita & Paul Krugman & Anthony J. Venables, 2001. "The Spatial Economy: Cities, Regions, and International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262561476, December.
  3. Simon J. Evenett & Wolfgang Keller, 1996. "On Theories Explaining the Success of the Gravity Equation," International Trade 9608001, EconWPA, revised 13 Jun 1997.
  4. Jan Eeckhout, 2004. "Gibrat's Law for (All) Cities," American Economic Review, American Economic Association, vol. 94(5), pages 1429-1451, December.
  5. Duncan Black & Vernon Henderson, 2003. "Urban evolution in the USA," Journal of Economic Geography, Oxford University Press, vol. 3(4), pages 343-372, October.
  6. Gabaix, Xavier & Ioannides, Yannis M., 2004. "The evolution of city size distributions," Handbook of Regional and Urban Economics, in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 53, pages 2341-2378 Elsevier.
  7. Arye Hillman, 1980. "Observations on the relation between “revealed comparative advantage” and comparative advantage as indicated by pre-trade relative prices," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 116(2), pages 315-321, June.
  8. Imre Fert– & L. J. Hubbard, 2003. "Revealed Comparative Advantage and Competitiveness in Hungarian Agri-Food Sectors," The World Economy, Wiley Blackwell, vol. 26(2), pages 247-259, 02.
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Citations

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Cited by:
  1. di Giovanni, Julian & Levchenko, Andrei A. & Rancière, Romain, 2010. "Power Laws in Firm Size and Openness to Trade: Measurement and Implications," CEPR Discussion Papers 7773, C.E.P.R. Discussion Papers.
  2. repec:wii:bpaper:bowp:088 is not listed on IDEAS
  3. Harry Bowen & Haris Munandar & Jean-Marie Viaene, 2010. "How integrated is the world economy?," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 146(3), pages 389-414, September.
  4. Jan Loecker & Jozef Konings & Patrick Cayseele, 2008. "Merger Review: How Much of Industry is Affected in an International Perspective?," Journal of Industry, Competition and Trade, Springer, vol. 8(1), pages 1-19, March.
  5. Ferto, Imre, 2008. "Comparative Advantage And Trade Competitiveness In Hungarian Agriculture," Bulletin of the Szent Istvan University 43326, Szent Istvan University, Faculty of Economics and Social Sciences.
  6. Xavier Gabaix, 2008. "Power Laws in Economics and Finance," NBER Working Papers 14299, National Bureau of Economic Research, Inc.
  7. Andrei A. Levchenko & Julian di Giovanni & Romain Ranciere, 2010. "Power Laws in Firm Size and Openness to Trade," IMF Working Papers 10/109, International Monetary Fund.
  8. P. Nijkamp & A. Reggiani, 2012. "Did Zipf Anticipate Socio-Economic Spatial Networks?," Working Papers wp816, Dipartimento Scienze Economiche, Universita' di Bologna.
  9. Steven Brakman & Robert Inklaar & Charles Van Marrewijk, 2013. "Structural change in OECD comparative advantage," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 22(6), pages 817-838, September.
  10. di Giovanni, Julian & Levchenko, Andrei A., 2013. "Firm entry, trade, and welfare in Zipf's world," Journal of International Economics, Elsevier, vol. 89(2), pages 283-296.

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