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A Gravity-Based Revealed Comparative Advantage Estimator

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  • Scott French

    (School of Economics, UNSW Business School, UNSW)

Abstract

I propose a method of moments estimator of revealed comparative advantage based on a flexible specification of trade flows that is consistent with a large class of gravity models of international trade. I show that this estimator has many desirable properties. It is theoretically consistent with the classical notion of Ricardian comparative advantage and is easily computed, even for very large samples. Statistical inference is straightforward, and it is closely related to a commonly-used estimator in the gravity literature that is known to be robust to various forms of heteroskedasticity and measurement error common to trade data.

Suggested Citation

  • Scott French, 2017. "A Gravity-Based Revealed Comparative Advantage Estimator," Discussion Papers 2017-05, School of Economics, The University of New South Wales.
    • Handle: RePEc:swe:wpaper:2017-05
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    File URL: http://research.economics.unsw.edu.au/RePEc/papers/2017-05.pdf
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    References listed on IDEAS

    as
    1. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Journal of Economic Literature, American Economic Association, vol. 42(3), pages 691-751, September.
    2. Gourieroux, Christian & Monfort, Alain & Trognon, Alain, 1984. "Pseudo Maximum Likelihood Methods: Applications to Poisson Models," Econometrica, Econometric Society, vol. 52(3), pages 701-720, May.
    3. Fally, Thibault, 2015. "Structural gravity and fixed effects," Journal of International Economics, Elsevier, vol. 97(1), pages 76-85.
    4. French, Scott, 2017. "Revealed comparative advantage: What is it good for?," Journal of International Economics, Elsevier, vol. 106(C), pages 83-103.
    5. Paulo Guimarães & Pedro Portugal, 2010. "A simple feasible procedure to fit models with high-dimensional fixed effects," Stata Journal, StataCorp LP, vol. 10(4), pages 628-649, December.
    6. Gopinath, G. & Helpman, . & Rogoff, K. (ed.), 2014. "Handbook of International Economics," Handbook of International Economics, Elsevier, edition 1, volume 4, number 4.
    7. James E. Anderson, 2011. "The Gravity Model," Annual Review of Economics, Annual Reviews, vol. 3(1), pages 133-160, September.
    8. Scott French, 2017. "Comparative Advantage and Biased Gravity," Discussion Papers 2017-03, School of Economics, The University of New South Wales.
    9. Egger, Peter & Nigai, Sergey, 2015. "Structural Gravity with Dummies Only," CEPR Discussion Papers 10427, C.E.P.R. Discussion Papers.
    10. Arnaud Costinot & Dave Donaldson & Ivana Komunjer, 2012. "What Goods Do Countries Trade? A Quantitative Exploration of Ricardo's Ideas," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 79(2), pages 581-608.
    11. A. Colin Cameron & Douglas L. Miller, 2015. "A Practitioner’s Guide to Cluster-Robust Inference," Journal of Human Resources, University of Wisconsin Press, vol. 50(2), pages 317-372.
    12. Egger, Peter H. & Nigai, Sergey, 2015. "Structural gravity with dummies only: Constrained ANOVA-type estimation of gravity models," Journal of International Economics, Elsevier, vol. 97(1), pages 86-99.
    13. Manning, Willard G. & Mullahy, John, 2001. "Estimating log models: to transform or not to transform?," Journal of Health Economics, Elsevier, vol. 20(4), pages 461-494, July.
    14. James J. Heckman & Thomas E. Macurdy, 1980. "A Life Cycle Model of Female Labour Supply," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 47(1), pages 47-74.
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    Cited by:

    1. French, Scott, 2017. "Revealed comparative advantage: What is it good for?," Journal of International Economics, Elsevier, vol. 106(C), pages 83-103.
    2. Bradford, Scott C. & Das, Satya & Saha, Anuradha, 2022. "Country size, per-capita income, and comparative advantage: services versus manufacturing," MPRA Paper 115091, University Library of Munich, Germany.
    3. Martin Grančay & Tomáš Dudáš, 2019. "Bilateral trade flows and comparative advantage: does the size matter?," Society and Economy, Akadémiai Kiadó, Hungary, vol. 41(4), pages 397-413, December.

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    More about this item

    Keywords

    Method of moments; pseudo-maximum likelihood; Poisson; Ricardian; RCA; index;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis

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