Implied Comparative Advantage

59 Pages Posted: 19 Mar 2014 Last revised: 3 Feb 2019

See all articles by Ricardo Hausmann

Ricardo Hausmann

Harvard University - Harvard Kennedy School (HKS)

Cesar Hidalgo

Massachusetts Institute of Technology (MIT) - MIT Media Laboratory; Harvard University - Harvard Kennedy School (HKS)

Daniel Stock

Harvard University - Harvard Kennedy School (HKS); Massachusetts Institute of Technology (MIT) - MIT Media Laboratory

Muhammed Ali Yildirim

Harvard University - Harvard Kennedy School (HKS)

Date Written: January 1, 2019

Abstract

Ricardian theories of production often take the comparative advantage of locations in diff erent industries to be uncorrelated. They are seen as the outcome of the realization of a random extreme value distribution. These theories do not take a stance regarding the counterfactual or implied comparative advantage if the country does not make the product. Here, we fi nd that industries in countries and cities tend to have a relative size that is systematically correlated with that of other industries. Industries also tend to have a relative size that is systematically correlated with the size of the industry in similar countries and cities. We illustrate this using export data for a large set of countries and for city-level data for the US, Chile and India. These stylized facts can be rationalized using a Ricardian framework where comparative advantage is correlated across technologically related industries. More interestingly, the deviations between actual industry intensity and the implied intensity obtained from that of related industries or related locations tend to be highly predictive of future industry growth, especially at horizons of a decade or more. This result holds both at the intensive as well as the extensive margin, indicating that future comparative advantage is already implied in today's pattern of production.

JEL Classification: F10, F11, F14, O41, O47, O50

Suggested Citation

Hausmann, Ricardo and Hidalgo, Cesar and Stock, Daniel and Yildirim, Muhammed Ali, Implied Comparative Advantage (January 1, 2019). HKS Working Paper No. RWP14-003. Available at SSRN: https://ssrn.com/abstract=2410427 or http://dx.doi.org/10.2139/ssrn.2410427

Ricardo Hausmann (Contact Author)

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Mailbox 34
Cambridge, MA 02138
United States
617-496-3740 (Phone)
617-496-8753 (Fax)

HOME PAGE: http://www.hks.harvard.edu/about/faculty-staff-directory/ricardo-hausmann

Cesar Hidalgo

Massachusetts Institute of Technology (MIT) - MIT Media Laboratory ( email )

20 Ames St.
E14-348b
Cambridge, MA 02139-4307
United States
617-324-6680 (Phone)
617-258-6264 (Fax)

HOME PAGE: http://www.chidalgo.com/

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States
574-315-5494 (Phone)

Daniel Stock

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States

Massachusetts Institute of Technology (MIT) - MIT Media Laboratory

20 Ames St.
Cambridge, MA 02139-4307
United States

Muhammed Ali Yildirim

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States

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