Power laws and comparative advantage

Abstract

Using a comprehensive international trade data set we document empirical Power Laws (PLs) for the distribution of the interaction between countries as measured by revealed comparative advantage. Using the recently developed estimator by Gabaix and Ibragimov (2011), we find strong evidence in favour of PLs along the time, country and sector dimension for three different levels of data aggregation. This finding is not predicted by any of the existing trade theories. The estimated PL exponents characterizing the distribution of revealed comparative advantage are stable over time but differ between countries and sectors. These differences are related empirically to country and sector characteristics, including population size, Gross Domestic Product (GDP) and factor intensities.

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