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On the measurement of comparative advantage

  • Alex Hoen

    ()

  • Jan Oosterhaven

    ()

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.

(This abstract was borrowed from another version of this item.)

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File URL: http://hdl.handle.net/10.1007/s00168-006-0076-4
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Article provided by Springer & Western Regional Science Association in its journal The Annals of Regional Science.

Volume (Year): 40 (2006)
Issue (Month): 3 (August)
Pages: 677-691

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Handle: RePEc:spr:anresc:v:40:y:2006:i:3:p:677-691
DOI: 10.1007/s00168-006-0076-4
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  1. 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.
  2. Ten Raa, T. & Mohnen, P., 1996. "The location of comparative advantages on the basis of fundamentals only," Discussion Paper 1996-81, Tilburg University, Center for Economic Research.
  3. Kunimoto, Kazutaka, 1977. "Typology of Trade Intensity Indices," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 17(2), pages 15-32, February.
  4. 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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