Indicators of product sophistication and factor intensities: Measurement matters

Article type: Research Article

Authors: Huber, Stephan^{a; b}

Affiliations: [a] University of Regensburg, Universitätsstr. 31, 93053 Regensburg, Germany | [b] University of Trier, Trier, Germany | Tel.: +49 941 4632740; E-mail: stephan.huber@wiwi.uni-regensburg.de

Abstract: The widely used PRODY indicator by Hausmann et al. [1] [What you Export Matters; Journal of Economic Growth: 12, 1–25] allows the calculation of product sophistication and factor intensities at high levels of disaggregation. In this paper I deal with its measurement, its conceptional limitations, its sensitivity to subjective decision making, its alternatives, and how to reap the best possible benefit from its usage. I introduce a theory-based alternative and investigate the sensitivity of empirical results with respect to different measurements. In particular, I re-estimate the main results of Hausmann et al. [1] with 75 variants of measurement. Small changes to the sample, the aggregation level, or the construction of the indicator can make a difference. Moreover, I offer two STATA programs that ease the calculation of various PRODY variants.

Keywords: Product sophistication, PRODY, EXPY, factor intensities, disaggregated bilateral trade, economic development

DOI: 10.3233/JEM-170440

Journal: Journal of Economic and Social Measurement, vol. 42, no. 1, pp. 27-65, 2017