Determinants of comparative advantage of crude oil production: Evidence fromOPECandnon-OPECcountries

Abstract

This study investigates the determinants of comparative advantage of crude oil production in 10 OPEC and 10 non-OPEC countries over the period 1990-2016. The study calculates the comparative advantage using the Normalized Revealed Comparative Advantage index (NRCA) and further estimates the relationship between the comparative advantage and three explanatory variables using panel autoregressive distributed lag (panel ARDL) in a separate panel for each group of countries. The result of NRCA shows that all OPEC countries have a comparative advantage in crude oil production, whereas five of the 10 non-OPEC countries have a comparative advantage in crude oil production. The result of the ARDL indicates that crude oil price (COP) and average of daily production (ADP) positively affect comparative advantage of crude oil production. The effect of natural resources (PR) is negative, suggesting that an increase in PR decreases the comparative advantage of these countries-a result that aligns with the philosophy of Hotelling rent. Finally, bidirectional Granger causality is established between all the investigated variables in both panels.