New revealed comparative advantage index: Dataset and empirical distribution

Abstract

Balassa Index (Balassa 1965) is widely used in the literature to measure country-sector Revealed Comparative Advantage (RCA). However, being computed on observed trade flows, it mixes up all the factors influencing trade flows. In particular, Balassa Index cannot isolate exporter-sector (ex ante) specific factors which are the source of comparative advantage in the spirit of the traditional trade model. Furthermore, Balassa Index suffers some empirical distribution weaknesses, mainly time instability and poor ordinal ranking property (Yeats 1985;Hinloopen and Van Marrewijk 2001). A recent paper by Costinot et al. (2012) provides a micro-founded version of the Ricardian model and suggests a new measure for comparative advantage. We build up on this paper, and present a dataset providing a new econometric based measure for Ricardian RCA.

Long-Term Comparative Advantages of the Eurasian Economic Union Member States in International Trade

“…It should be clearly stressed, though, that despite there being many different theoretical modifications of the traditional Balassa's formula in use in the literature proposed on the grounds of its objective shortcomings as mentioned above [see e.g., Donges, Riedel, 1977;Bowen, 1983;Ballance, Forstner, Murray, 1985;Proudman, Redding, 2000;Hoen, Oosterhaven, 2006;Yu, Cai, Leung, 2008;Leromain, Orefice, 2013;Laursen, 2015], which in turn themselves are also subject to criticism, this approach continues to be widely used in a number of empirical studies concerning international competitiveness of economies from all around the world, ranging from special reports on the EU competitiveness commissioned by the European Commission [see e.g., EC, 2015;Pashev, 2015;EC, 2014;CIREM, 2013] to publications of the World Bank [Reis, Farole, 2012] and to research papers written by numerous economists [see e.g., Weresa, 2014;Ekmen-ÖzÇelÍk, Erlat, 2013;Saboniene, 2009]. All this seems to be proof enough that -to quote the words of Grigorovici [2009] -"RCA index is the most widely used for estimating the comparative advantage in the commercial relations between countries".…”

China’s trade competitiveness in the steel industry after 15 years of its membership in the WTO

“…In order to specify the Balassa index, Costinot, et al (2012) [3] also developed a new RCA index that enables to isolate the exporter-specific factors driving trade flows. Leromain and Orefice (2013) [7] picked up the idea from Costinot et al (2012) and proposed some improvements, i.e. they covered a higher product disaggregation and extended the sample of partner countries and the time span.…”

Export competitiveness of the European Union in fruit and vegetable products in the global markets

“…a fruit and vegetable product group in which the country is relatively more specialized in the terms of exports. Despite some critiques of the RCA index as an export specialization index, such as the asymmetric value problem and the problem with the logarithmic transformation (De Benedictis and Tamberi 2004), the importance of the simultaneous consideration of the import side (Vollrath 1991), and the lack of a sound theoretical background, which is provided by Costinot et al (2012) and Leromain and Orefice (2013) -the RCA index remains a popular tool for analysing the export competitiveness in the empirical trade literature.…”