Bringing geography into the analysis of trade competition

ABSTRACT

Trade competition between two countries is usually measured through structural similarity indicators (e.g., Krugman Specialization Index). We contribute to the area of research that focuses on how to measure trade competition between two countries by proposing an indicator that simultaneously accounts for structural and geographical similarity (i.e., similarity in sectoral weights for each market and weights of destination markets). We perform an empirical analysis considering the exports from the 28 EU countries to more than 120 markets. The importance of the geographical dimension is confirmed, highlighting that applied studies may produce inaccurate conclusions when this dimension is excluded.

KEYWORDS:

• Trade competition
• structural similarity
• geographical similarity

JEL CLASSIFICATION:

• F10
• F14

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Funding

This work was supported by the Fundação para a Ciência e a Tecnologia [UID/GES/00315/2013].