Revisiting Constant Market Share Analysis, An Application to NAFTA (Abridged Version)

Abstract

Devising well-behaved constant market share decomposition indices has been the pursuit of many researchers since the 1950s. This article proposes a new formulation of constant market share (CMS) trade analysis inspired by the statistical principles supporting revealed comparative advantages (RCA). This novel approach is methodologically consistent and rooted in information theory. It avoids also the discrete-form residuals that plague traditional CMS analysis, while remaining simple to compute. It is shown that both CMSD and RCA can be paired together in order to shed light on the dynamics of competitiveness and comparative advantages in international trade. This abridged version corresponds to the methodological sections of the publication “Revisiting constant market share analysis, an application to NAFTA” published by the Economic Commission for Latin America and the Caribbean. In the original version, the new “comparative market share analysis” decomposition (CMSD) is applied to the changes in the structure and origin of United States imports after the implementation of NAFTA.