A Gravity-Based Revealed Comparative Advantage Estimator

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.

Keywords: Method of moments; pseudo-maximum likelihood; Poisson; Ricardian; RCA; index

JEL Classification: F10, F11, F14, C13, C21, C55