What Goods Do Countries Trade? A Quantitative Exploration of Ricardo’s Ideas

Abstract. The Ricardian model predicts that countries should produce and export relatively more in industries in which they are relatively more productive. Though one of the most celebrated insights in the theory of international trade, this prediction has received little attention in the empirical literature since the mid-1960s. The main reason behind this lack of popularity is the absence of clear theoretical foundations to guide the empirical analysis. Building on the seminal work of Eaton and Kortum (2002), we offer such foundations and use them to quantify the importance of Ricardian comparative advantage. In the process, we also provide a theoretically-consistent alternative to Balassa’s (1965) well-known index of ‘revealed comparative advantage.’