World Trade Patterns: an Empirical Study of Revealed Comparative Advantage Approach

Abstract

The theory of international trade emphasises that trade of an economy is determined by the factors arising from internal supply and external demand. The factors on the internal supply front constitute the elements like, cost of production, behaviour of internal demand, tariff, taxes, subsidies and overall considerations of comparative cost advantages. Factors on the external demand side include such variables as the price, quality, marketing of the products, trade and production policies of the buyer countries and the mutual trade agreements and relations between and/or among the supplier and demanding countries. Over a period of time it was found that the non-oil developing countries were facing severe constraints to augment their exports particularly in the developed market economies. These constraints were quite often mainly due to comparative cost disadvantages, lack of competitiveness, lack of commodity correspondence and so on. This leads us to examine the state of comparative advantage across products vis-a-vis products' competitiveness and commodity correspondence over time. In the context of the above, the first section examines the structure of world trade, whereas section second reveals the state of comparative cost advantage. Sections third and fourth look into the nature of the country's competitiveness and complementarities across the various products. The commodity correspondence ratio that reflects the future prospects of trade cooperation is dealt in section five, whereas, policy prescription in order to enhance trade cooperation has been discussed in section six—the concluding remarks.