revealed comparative advantage. the revealed comparative advantage of a nation is measured by the...
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Revealed Comparative Advantage
Revealed Comparative Advantage
• The revealed comparative advantage of a nation is measured by the relative weight of a percentage of total export of commodity’s in a nation over the percentage of world export in that commodity.
• Balassa (1965) • K is an industrial index while j is a country index, X is
export
j k j
jk
jk
k
jk
jk
kj XX
XXRCA
/
/
Implication
• When RCA>1, it means that country j has a revealed comparative advantage on commodity k.
• When RCA<1, it means that country j has a revealed comparative disadvantage on commodity k.
(2) Intra-Industry Trade Index
• Formula to calculate the importance of intra-industry trade within a given industry
• I=1-abs(EX-IM)/(EX+IM)
• If a country only export in that industry, then I=0• If a country only import in that industry, then I=0• If a country’s exports and imports within an industry are
equal, then we have I=1.
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