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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.

Suggested Citation

  • Hoen, Alex R., 2001. "On the measurement of comparative advantage," Research Report 04C11, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    • Handle: RePEc:gro:rugsom:04c11
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    File URL: http://irs.ub.rug.nl/ppn/265445132
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    References listed on IDEAS

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    1. Thijs ten Raa & Pierre Mohnen, 2009. "The Location of Comparative Advantages on the Basis of Fundamentals Only," World Scientific Book Chapters, in: Input–Output Economics: Theory And Applications Featuring Asian Economies, chapter 23, pages 425-446, World Scientific Publishing Co. Pte. Ltd..
    2. Kunimoto, Kazutaka, 1977. "Typology of Trade Intensity Indices," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 17(2), pages 15-32, February.
    3. Harry Bowen, 1985. "On measuring comparative advantage: A reply and extension," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 121(2), pages 351-354, June.
    4. Robert Ballance & Helmut Forstner & Tracy Murray, 1985. "On measuring comparative advantage: A note on Bowen’s indices," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 121(2), pages 346-350, June.
    5. Thomas Vollrath, 1991. "A theoretical evaluation of alternative trade intensity measures of revealed comparative advantage," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 127(2), pages 265-280, June.
    6. Jeroen Hinloopen & Charles Marrewijk, 2001. "On the empirical distribution of the Balassa index," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 137(1), pages 1-35, March.
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    More about this item

    JEL classification:

    • 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

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