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Revealing Ricardian Comparative Advantage with Micro and Macro Data

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  • Huang, Hanwei
  • Ottaviano, Gianmarco

Abstract

We propose a sufficient statistics approach to measuring Ricardian comparative advantage based on a quantitative trade model simultaneously featuring cross-country differences in productivity, factor prices, and market size, as well as monopolistic competition, endogenous markups, and firm heterogeneity. The model’s micro-foundations do not necessarily imply that the relevant data for the proposed sufficient statistics must include micro information, but its micro-structure is needed to understand how only macro information can be used instead. Applying the proposed approach to Chinese micro data and cross-country macro data, we show that imperfect competition with endogenous markups and firm heterogeneity have far-reaching implications for correctly measuring Ricardian comparative advantage, and understanding its relation with the Balassa index of Revealed comparative advantage.

Suggested Citation

  • Huang, Hanwei & Ottaviano, Gianmarco, 2024. "Revealing Ricardian Comparative Advantage with Micro and Macro Data," CEPR Discussion Papers 18724, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:18724
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    Keywords

    Multiproduct firms;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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