Abstract
The Revealed Comparative Advantage (RCA) index is an important metric for evaluating competitiveness of a country in exporting certain commodity. While it is desirable to have a normally distributed RCA index, the opposite is often found in empirical studies, and efforts for developing alternative indices of the RCA index have not been very successful. This motivates us to ask a more fundamental question: what is the significance of a normally distributed RCA index? To answer this question, we have defined a quantity called the Deviation from Gaussianity (DfG) based on the KS test, which quantifies the deviation of the distribution of a country’s RCA index from normality. By systematically analyzing the distribution characteristics of RCA index for each country from 1991 to 2019, we find that DfG is strongly negatively correlated with the logarithm of GDP and the Economic Complexity Index (ECI). In particular, correlation between DfG and GDP is stronger than that between ECI and GDP since 2008. These results suggest that DfG may serve as a new excellent index to quantify the economic complexity and economic performance of a country.
Highlights
The revealed comparative advantage (RCA) index, called Balassa index as it was first proposed by Balassa in 1965 [1], is an important metric for quantifying the relative strength of a country in producing a product vis-à-vis its trading partners
To understand why the RCA index and its alternatives may not follow Gaussian distributions, Liu and Gao systematically analyzed the distribution characteristics of the RCA index cross sectors and countries [16]. They find that the RCA index in the majority of the situations cannot be normally distributed, since it is the ratio of two distributions, one following an exponentially truncated Zipf–Mandelbrot’s law, the other being a permutation of the truncated Zipf–Mandelbrot’s law [16]
By comparing the columns 1 and 2, we find that Deviation from Gaussianity (DfG) can explain 57.3 percent of the variance in GDP, while Economic Complexity Index (ECI) accounts for 45.7 percent, as shown by the R2 of the regression
Summary
The revealed comparative advantage (RCA) index, called Balassa index as it was first proposed by Balassa in 1965 [1], is an important metric for quantifying the relative strength of a country in producing a product vis-à-vis its trading partners. The non-Gaussianity has made the RCA index to suffer from many disturbing properties such as unstable distribution and poor ordinal ranking property [3], the unstable mean [4,5], asymmetric distributional shape [2], and skewness and variable upper bound [6,7] These features of the RCA index have made its interpretation difficult [3,4,8,9,10], and have motivated a lot of researchers to develop alternative indices of the RCA index so that the new indices can be more normally distributed [3,4,5,11,12,13,14,15]. The significance of a normally distributed RCA index has not yet been explained,
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