Q2. What are the key assumptions that are needed for the use of an RCA index to be appropriate?
the key assumptions that are needed for the use an RCA index to be appropriate at all: trade barriers that can be separated into bilateral and product- and market-specific components and an elasticity of product-level trade flows to exporters’ production and trade costs that is constant across products, both of which indicate that RCA measures can be most appropriately utilized to study patterns of comparative advantage within somewhat narrowly defined sectors.
Q3. What is the degree of dispersion in productivity between varieties of k?
The degree of dispersion in productivity across varieties of k is governed by θ > 1, with a larger value of θ implying a lower variance.
Q4. What is the cost of a bundle of production inputs in i?
where ci is the overall cost of a bundle of production inputs in i, d k ni ≥ 1 is an “iceberg” trade cost, and Zki (ω) is the productivity with which inputs can be turned into units of variety (k, ω) in i.Similar to Eaton and Kortum (2002), Zki (ω) is distributed according toF ki (z) = e −Tki z−θ .
Q5. What is the common use of RCA indexes?
RCA indexes have also been employed in analyses of technological change over time, for example in Proudman and Redding (2000) and Bahar et al. (2014).
Q6. How can the MBI isolate the effect of relative productivity on trade flows?
The MBI is able to isolate the effect of relative productivity on trade flows by comparing bilateral trade flows for a given product to trade flows from other countries of the same product to the same market (removing product- and market-specific effects of trade distortions) and to trade flows from the same country of other products (removing bilateral effects of trade distortions).