A Measure of Countries’ Distance to Frontier Based on Comparative Advantage

Abstract:

This paper presents a structural ranking of countries by their distance to frontier. The ranking is based on comparative advantage. Hence, it reveals information on the productive capabilities of countries that is fundamentally different from GDP per capita. The ranking is centered on the assumption that countries’ capabilities across products are similar to those of other countries with comparable distance to frontier. It can be micro-founded using standard trade models. The estimation strategy provides a general, non-parametric approach to uncovering a log-supermodular structure from the data, and I use it to also derive a structural ranking of products by their complexity. The underlying theory provides a fexible micro-foundation for the Economic Complexity Index (Hidalgo and Hausmann, 2009).

CID Research Fellow & Graduate Student Working Paper: 135
Keywords: distance to frontier, economic complexity index, gravity model, log-supermodularity, monotonic eigenvector, product complexity ranking
JEL Classifications: O11, O47, F10, F14
Last updated on 09/22/2022