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.