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1. 1NTRODUC:TION The measurement of standardized net export shares called revealed comparative advantage (RCA), pioneered by Balassal and refined by many researchers afterwards, has become the workhorse of empirical research on trade patterns. Taking inter-country differentials in factor endowment and factor intensity of production into account led to the widely shared result that relatively labour-abundant countries should have positive RCAS in labour-intensive products and negative ones in capital-intensive products while relatively capital-abundant countries would enjoy positive RCAS in relatively capital-intensive products. The Heckscher-Ohlin-Samuelson (Hos) framework of inter-industry trade under perfect competition and lack of factor mobility provides the theoretical underpinnings of RCA measurement and fits well into North-South trade patterns between countries with significantly different factor endowments and relative factor immobility.2 In cases where North-South trade flows failed to yield theoretically expected RCA values, import substitution policies protecting the least abundant domestic factor-that is, labour in the North and capital in the South-were found to be largely responsible. Yet, in the empirical analysis, it has always proven difficult to clearly disentangle the endowment part and the trade policy part as explanatory factors of RCA indices.3 Explaining RCA patterns in goods trade between industrialized countries (North-North trade) under imperfect
Journal of World Investment and Trade – Brill
Published: Jan 1, 2004
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