Empirical relevance of the Hillman condition for revealed comparative advantage: 10 stylized facts

Abstract

The theoretically necessary and sufficient condition for the correspondence between ‘revealed’ comparative advantage and pre-trade relative prices derived by Hillman (1980) is analyzed empirically for virtually all countries of the world over an extended period of time. This yields 10 stylized facts, including that (i) violations of the Hillman condition are small as a share of the number of observations, but substantial as a share of the value of world exports, (ii) violations occur relatively frequently in the period 1970 – 1984 and more rarely in the period 1985 – 1997, and (iii) violations occur foremost in primary product and natural-resource intensive sectors, and for countries in Africa, the Middle East, Latin America, and Central and Eastern Europe. An additional bonus of verifying the Hillman condition in empirical research is its ability to identify erroneously classified trade flows.