On the links between the theory of comparative advantage and the network structure of trade

Crawford School of Public Policy | Arndt-Corden Department of Economics

Event details

PhD Seminar (Econ)

Date & time

Friday 16 August 2013
9.30am–11.00am

Venue

Coombs Seminar Room A, Coombs Building, Fellows Road, ANU

Speaker

Matthew McKay, PhD student, Arndt-Corden Department of Economics, Crawford School of Public Policy, ANU

Contacts

Robert Sparrow
61253885

The network structure of trade can be used to derive a revealed measure of economic and product complexity. These properties fundamentally rely on two characteristics of trade: country diversity and product ubiquity. A diverse country that exports many non-ubiquitous products will be ranked as more economically complex, while a country that has concentrated non-ubiquitous exports is ranked as less economically complex. The Method of Reflections, used in the Product Space, provide a ranking of countries and products in a many-country, many-product setting that delivers a pattern of trade that is highly correlated with patterns determined by the theory of comparative advantage. While traditional trade theory in high dimensionality setting identifies rigorous gains from trade, it typically fails to deliver a unique patterns of trade. This paper treats the pattern of trade as given (from product level export data) and graphically relates the derived measures of Economic Complexity (ECI) and Product Complexity (PCI) back to the traditional literature on trade to show the approaches are complimentary.

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