Measures of Comparative Advantage
2 Outline 1.Defining measures 2.Some tests and examples
3 1. Defining Measures 1.1. Revealed Comparative Advantage (RCA) BALASSA where X are exports, i a country, j a set of goods This index compares the share of exports of good j of country i to the share of the same exports in world exports. RCAB>1 : comparative advantage.
RCA from own imports and exports RCAXMj = (Xj/Mj)/(X/M) RCAXM>1 : comparative advantage Dividing by X/M makes a correction for unbalanced trade. Easier to compute than Balassa’s: national data suffice. Variant : i=country, k=sector, [Xi+Mi] can be replaced by Y (GDP), 1000 can be replaced by 100; RCAF>0 = comparative advantage; (RCAF) over k = 0; measures the difference between the trade surplus in k and what it would be if it was determined by its share in trade and the current trade balance. Source: Fontagne, L. & Freudenberg, M. (1999) “Marche unique et developpement des echanges” Economie et Statistique , 6/7, p. 45.
5 2. Some tests and examples 2.1. Relative labor cost and Relative export (cfr. Ricardo) Source: The Economist, Nov. 4, 1995.
6 Relative labor costs (2/2) Don’t mix Real lative labor costs across goods and countries (Ricardo) Nominal relative labor cost across countries Nominal relative labor costs
Factor endowments
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9 Belgique : Evolution sectorielle de la valeur ajoutée et de l'emploi et composition sectorielle du commerce extérieur. Commentaires pour la production belge: Italiques gras : Reculs importants : rapport 2002/1995 inférieur à 1 pour la Valeur ajoutée et à 0,94 (moyenne de l'industrie) pour l'Emploi. Ordinaire gras : Avancées importantes : rapport 2002/1995 supérieur à 1,08 (moyenne de l'industrie) pour la Valeur ajoutée, et à 1 pour l'Emploi. Commentaires pour le commerce international: Colonne 7 : part du secteur i dans le commerce total de la Belgique. Colonne 8 : Rapports multilatéraux corrigés : Exportations totales (X)/Importations totales (M): [(Xi/Mi)/(X/M)] Sources : Calculs propres à partir de Belgostat-online (Banque Nationale de Belgique) données belges et des statistiques en ligne des Nations-Unies : Comtrade : données Belgique et Luxembourghttp://unstats.un.org/unsd/comtrade/
10 De Crombrugghe, A. (2004) “L’Elargissement de l‘U.E. et les tendances sectorielles du commerce exterieur et de l’activite economique de la Belgique” Studia Diplomatica, LVI, 5,
11 Empirically weak link between production and employment growth and revealed comparative advantage (RCA) (even at end of observation period). Other elements to be taken into account: -RCA “before” and “after” and its evolution -RCA of trading partners -Domestic productivity of the industry, share of output -Investment and FDI. Quite often production growth and ex-post RCA are correlated, investment being driven by expected returns.