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

Kaveri Deb and Partha Basu

Foreign Trade Review, 2011, vol. 46, issue 3, 3-28

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

Keywords: Revealed comparative advantage; Heckscher-Ohlin theory; labour intensive commodities; capital intensive commodities (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:sae:fortra:v:46:y:2011:i:3:p:3-28

DOI: 10.1177/0015732515110301

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