On the measurement of comparative advantage
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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Volume (Year): 40 (2006)
Issue (Month): 3 (August)
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1996-81, Tilburg University, Center for Economic Research.
- 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..
- 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.
- Pierre Mohnen & Thijs Ten Raa, 1997. "The Location of Comparative Advantages on the Basis of Fundamentals Only," CIRANO Working Papers 97s-07, CIRANO.
- Kunimoto, Kazutaka, 1977. "Typology of Trade Intensity Indices," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 17(2), pages 15-32, February.
- 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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