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Implied Comparative Advantage

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  • Hausmann, Ricardo

    (Harvard University and Santa Fe Institute)

  • Hidalgo, Cesar A.

    (MIT and ISCV, Valparaiso)

  • Stock, Daniel P.

    (Harvard University and MIT)

  • Yildirim, Muhammed A.

    (Harvard University)

Abstract

Ricardian theories of production often take the comparative advantage of locations in different industries to be uncorrelated. They are seen as the outcome of the realization of a random extreme value distribution. These theories do not take a stance regarding the counterfactual or implied comparative advantage if the country does not make the product. Here, we find that industries in countries and cities tend to have a relative size that is systematically correlated with that of other industries. Industries also tend to have a relative size that is systematically correlated with the size of the industry in similar countries and cities. We illustrate this using export data for a large set of countries and for city-level data for the US, Chile and India. These stylized facts can be rationalized using a Ricardian framework where comparative advantage is correlated across technologically related industries. More interestingly, the deviations between actual industry intensity and the implied intensity obtained from that of related industries or related locations tend to be highly predictive of future industry growth, especially at horizons of a decade or more. This result holds both at the intensive as well as the extensive margin, indicating that future comparative advantage is already implied in todays pattern of production.

Suggested Citation

  • Hausmann, Ricardo & Hidalgo, Cesar A. & Stock, Daniel P. & Yildirim, Muhammed A., 2014. "Implied Comparative Advantage," Working Paper Series rwp14-003, Harvard University, John F. Kennedy School of Government.
  • Handle: RePEc:ecl:harjfk:rwp14-003
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    References listed on IDEAS

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    Cited by:

    1. Neffke, Frank M.H. & Otto, Anne & Weyh, Antje, 2017. "Inter-industry labor flows," Journal of Economic Behavior & Organization, Elsevier, vol. 142(C), pages 275-292.
    2. Eduardo Lora, 2016. "The Path to Labor Formality: Urban Agglomeration and the Emergence of Complex Industries," CID Working Papers 78, Center for International Development at Harvard University.
    3. Neave O'Clery & Eduardo Lora, 2016. "City Size, Distance and Formal Employment," CID Working Papers 77, Center for International Development at Harvard University.
    4. Dario Diodato & Frank Neffke & Neave O'Clery, 2016. "Agglomeration Economies: The Heterogeneous Contribution of Human Capital and Value Chains," CID Working Papers 76, Center for International Development at Harvard University.
    5. Hausmann, Ricardo & Morales, Jose Ramon & Santos, Miguel Angel, 2016. "Economic Complexity in Panama: Assessing Opportunities for Productive Diversification," Working Paper Series rwp16-046, Harvard University, John F. Kennedy School of Government.
    6. Ricardo Hausmann & Jose Ramon Morales Arilla & Miguel Angel Santos, 2016. "Panama beyond the Canal: Using Technological Proximities to Identify Opportunities for Productive Diversification," CID Working Papers 324, Center for International Development at Harvard University.

    More about this item

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O50 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - General

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