Steadiness and Mobility of Trade Patterns in the Baltic States

Abstract

This paper describes specialisation dynamics in the Baltic States using Revealed Comparative Advantage (RCA) measured. We analyse the development of the distribution of the comparative advantage using descriptive statistics, Galtonian regression, and Gini coefficient. Intersectoral specialisation dynamics is investigated using Markov transition probability matrix. Trade patterns dynamics aggregated by factor endowments are also discussed. Despite some contradictory results obtained using different methodologies the following general conclusions can be formulated. Diversification is the general trend in the development of the comparative advantage structure in the Baltic States. The most polarized structure of specialization in the considered period is in Latvia, the most diversified is in Estonia. However the degree of mobility varies significantly between countries. The most mobile structure of specialization is in Latvia. In Estonia the mobility is the lowest. For all the Baltic States trade patterns are highly persistent for the sectors with strong comparative advantage and strong comparative disadvantage. It is shown that the probability of remaining in the same class for analysed sectors is high. Commodity groups that belong to the intermediate classes exhibit higher mobility. The share of primary products and the comparative advantage in this group decreased most significantly in Estonia. In Latvia the share of the product groups with a comparative advantage increased. The share of natural-resource intensive products decreased in all three countries, the share of commodity groups with comparative advantage also reduced. Multidirectional dynamics is observed in unskilled labour intensive products. While in Estonia this group has lost comparative advantage, the opposite trend is observed in Latvia and Lithuania. The share of technology-intensive goods rises in all countries. However only in Estonia and Lithuania the comparative advantage in this group increased significantly.