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Indices of Revealed Comparative Advantage and their Consistency with the Heckscher-Ohlin Theory

Author

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  • Kaveri Deb
  • Partha Basu

Abstract

The issue of comparative advantage constitutes an important feature of the theory of international trade. Comparative advantage of countries has been measured in the literature by various alternative indices of ‘revealed comparative advantage’. Balassa first coined the term ‘revealed comparative advantage’ and the index that he devised in the process, has been later modified by various authors in many ways to address one or more of the shortcomings of Balassa's index. However, the existing literature has not tried to determine empirically, the extent to which the different indices are consistent with the idea of comparative advantage as identified particularly by Eli Heckscher and Bertil Ohlin. The present paper makes an attempt in this regard. In the process, another index has been derived by considering the logarithmic transformation of the Balassa's index, and its consistency with the theory has been empirically tested in a similar manner to determine whether it performs better than the other indices. A theoretical review of the alternative indices and empirical findings in different situations exhibit the modified index certainly has an edge over other indices. JEL Classification: F11, F14, C43, C12, C21, R12

Suggested Citation

  • Kaveri Deb & Partha Basu, 2011. "Indices of Revealed Comparative Advantage and their Consistency with the Heckscher-Ohlin Theory," Foreign Trade Review, , vol. 46(3), pages 3-28, October.
    • Handle: RePEc:sae:fortra:v:46:y:2011:i:3:p:3-28
    DOI: 10.1177/0015732515110301
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    Citations

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    Cited by:

    1. Deb, Kaveri & Sengupta, Bodhisattva, 2016. "On Empirical Distribution of RCA Indices," MPRA Paper 74087, University Library of Munich, Germany.
    2. Konstantakopoulou, Ioanna & Tsionas, Mike G., 2019. "Measuring comparative advantages in the Euro Area," Economic Modelling, Elsevier, vol. 76(C), pages 260-269.
    3. Escaith, Hubert, 2020. "Contrasting Revealed Comparative Advantages when Trade is (also)in Intermediate Products," MPRA Paper 103666, University Library of Munich, Germany.
    4. Kaveri Deb & William R. Hauk, 2017. "RCA indices, multinational production and the Ricardian trade model," International Economics and Economic Policy, Springer, vol. 14(1), pages 1-25, January.
    5. Osama Elsalih & Kamil Sertoglu & Mustafa Besim, 2021. "Determinants of comparative advantage of crude oil production: Evidence from OPEC and non‐OPEC countries," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(3), pages 3972-3983, July.

    More about this item

    Keywords

    Revealed comparative advantage; Heckscher-Ohlin theory; labour intensive commodities; capital intensive commodities;
    All these keywords.

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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