1. Revealed Comparative Advantage in the Internal Market Mika Widgrén Turku School of Economics and Business Administration, ETLA, CEPR and CESifo

2. 2 Background Economic integration has substantial effects on the location of industrial activities At inter-country level, differences of comparative advantage accross countries determine specialisation patterns This paper evaluates –inter-country specialisation patterns of the EU and selected countries in Asia and Americas in the IM –the origins of specialisation in the IM –The development of specialisation between 1996 and 2002 in the IM The data: Eurostat trade data at HS 4-digit level

3. 3 The Method The concept of revealed comparative advantage (Balassa 1965) Classification of factor intensities in different industries (Neven 1995) The Balassa index: Reference group: intra-EU and extra-EU trade flows

4. 4 A summary of the properties of five industry classification categories of Neven (1995) Intensity Category Human capitalLabourPhysical capitalExample 1Very highHighIntermediateHigh tech 2High LowElectrical equipment 3LowHighLowTextiles 4Low HighCar industry 5HighLowHighPaper industry

5. 5 A quantification of Neven’s categories capital intensity skill intensity category 4 (-1,1) category 3 (-1,-1) category 5 (1,1) category 2 (1,-1) category 1 (2,0) (0.4,0)

6. 6 The distribution of RCA-exports to skill-capital-intensity categories in selected countries and EU15 in 2002 123453+41+2+5 EU1530.620.66.838.04.044.855.2 Brazil3.024.95.039.927.144.955.1 China23.013.324.738.40.663.037.0 India7.78.037.442.24.779.620.4 Korea43.19.817.729.30.047.152.9 Mexico39.525.01.725.58.327.272.8 Russia6.85.00.183.74.483.816.2 Thailand26.914.916.835.65.852.447.6 Turkey1.08.946.534.59.281.019.0 U.S.51.733.71.69.43.611.188.9 Canada26.320.93.326.922.630.269.8 Indonesia15.216.136.525.46.861.938.1 Japan31.522.12.444.00.046.453.6

7. 7 The change of the distribution of RCA-exports in selected countries and EU15 between 1996 and 2002 123453+41+2+5 EU1510.6-8.1-2.1-0.40.0-2.62.6 Brazil0.3-1.7-1.15.2-2.74.1-4.1 China15.52.1-9.1-8.2-0.4-17.317.3 India3.2-4.00.52.4-2.22.9-2.9 Korea2.6-0.61.7-3.60.0-1.91.9 Mexico18.39.6-25.4-1.5-26.426.4 Russia-0.60.8-0.4-0.30.4-0.60.6 Thailand0.0-2.3-0.17.3-4.97.2-7.2 Turkey-5.21.0-3.912.5-4.48.5-8.5 U.S.2.55.7-0.9-4.9-2.5-5.85.8 Canada5.17.21.2-4.5-8.9-3.43.4 Indonesia10.0-0.6-1.7-7.0-0.7-8.78.7 Japan-3.01.30.11.70.01.8-1.8

8. 8 The distribution of RCA-exports to skill-capital- intensity categories in CEE-countries in 2002 123453+4 Bulgaria4.46.748.835.84.284.6 Czech Rep.12.923.810.751.31.362.0 Estonia26.010.621.339.42.760.7 Hungary25.817.811.344.30.855.6 Latvia2.12.624.569.81.094.3 Lithuania12.98.542.431.24.973.6 Poland4.614.023.553.74.377.1 Romania1.510.668.518.51.087.0 Slovakia7.413.517.659.61.977.2 Slovenia3.825.515.155.40.270.5 Source: Kaitila (2004).

9. 9 The change of the distribution of RCA-exports in CEE- countries between 1996 and 2002 1 2 3 4 5 3+4 Bulgaria -4.0 13.2 1.4 -9.5 14.5 Czech Rep. 5.5 11.9 -16.2 3.4 -4.6 -12.9 Estonia 20.6 3.4 -4.4 -18.6 -23.0 Hungary 16.3 5.3 -27.6 10.5 -4.5 -17.1 Latvia -3.2 1.1 8.4 -3.8 -2.5 4.6 Lithuania -4.2 6.7 22.3 -15.9 -8.9 6.4 Poland 7.8 -18.3 15.8 -4.3 -2.5 Romania -1.4 7.3 -1.1 -3.3 -1.7 -4.3 Slovakia -0.1 6.4 -16.0 16.4 -6.7 0.4 Slovenia 1.9 6.2 -19.9 12.9 -1.1 -7.0 Source: Kaitila (2004).

10. 10 Sample countries’ aggregate RCA in different categories 12345 EU151.071.080.750.980.84 Brazil0.111.310.551.035.72 China0.810.702.730.990.13 India0.270.424.141.091.00 Korea1.510.511.960.760.00 Mexico1.381.310.180.661.76 Russia0.240.260.012.170.94 Thailand0.940.781.860.921.22 Turkey0.030.475.140.891.93 U.S.1.811.770.180.240.75 Canada0.921.090.370.704.78 Indonesia0.530.844.040.661.43 Japan1.101.160.271.140.00

11. 11 CEE-countries’ aggregate RCA in different categories 12345 Bulgaria0.190.446.681.151.10 Czech Rep.0.531.461.391.560.32 Estonia1.220.753.161.370.76 Hungary1.061.091.461.340.20 Latvia0.120.214.252.840.33 Lithuania0.62 6.461.111.43 Poland0.200.903.181.701.11 Romania0.060.628.370.530.23 Slovakia0.290.792.181.730.45 Slovenia0.151.541.921.650.05 Source: Kaitila (2004).

12. 12 The percentage of exports classified in Neven’s five categories

13. 13 US KO CN EU JP TH BR HU ES CH RO LV ID SK IN LT BL TR CZ PL SV Capital intensity Skill intensity Weighted RCA and the most substantial shifts in it

14. 14 Conclusions Among the countries in our sample the U.S. is a clear exception (high human-capital intensity and low physical capital intensity) The most notable shifts in Estonia, Hungary, Czech Republic and China) EU15 has reached Japan and Korea in skill intensity In the EU, Ireland, the UK and the Netherlands close to the U.S. in category 1 net exports (Finland and Sweden following close behind) Overall trend: when the relative importance of human capital intensity increases the relative importance of physical capital intensity decreases