Trade dynamics, revealed comparative advantage, and international competitiveness: Evidence from Macedonia

Abstract

This paper examines the sectoral specialisation and competitiveness of Macedonia in relation to that of the EU28, using four indices of revealed comparative advantage for the years 2000-2015. Additionally, we estimate the stability of the distribution and of the value of trade specialisation indices over time, as well as the duration and probability of the long-term survival of continuing export competitiveness. The findings suggest that the structure of Macedonia's comparative advantage has changed somewhat over the past few years, and there is also evidence of a weakening in the level of comparative advantage as revealed by the Balassa (B) index. The comparisons made between the implied (theoretically derived) probability distributions and their empirical counterparts demonstrate that the Markov transition probabilities accurately characterise the data-generating process that highlights the distributions of the B index, and thus allow for obtaining a precise prediction about the probability distribution vectors, including the limiting distribution. Finally, the results of estimating the survival function show that the survival times of revealed comparative advantage are not persistent over the period observed. The continuous decline in the chance of certain product groups surviving indicates that Macedonia is becoming increasingly vulnerable to competition from other markets.