The revealed comparative advantage is an
index used in
international economics
International economics is concerned with the effects upon economic activity from international differences in productive resources and consumer preferences and the international institutions that affect them. It seeks to explain the patterns and ...
for calculating the relative advantage or disadvantage of a certain country in a certain class of goods or services as evidenced by trade flows. It is based on the Ricardian
comparative advantage
In an economic model, agents have a comparative advantage over others in producing a particular good if they can produce that good at a lower relative opportunity cost or autarky price, i.e. at a lower relative marginal cost prior to trade. Comp ...
concept.
It most commonly refers to an index, called the Balassa index, introduced by
Béla Balassa
Béla Alexander Balassa (6 April 1928 – 10 May 1991) was a Hungarian economist and professor at Johns Hopkins University and a consultant for the World Bank.
Balassa is best known for his work on the relationship between purchasing power parit ...
(1965).
In particular, the revealed comparative advantage of country
in product/commodity/good
is defined by:
:
, where:
That is, the RCA is equal to the proportion of the country's exports that are of the class under consideration,
, divided by the proportion of world exports that are of that class,
.
A comparative advantage is "revealed" if RCA>1. If RCA is less than unity, the country is said to have a
comparative disadvantage in the commodity or industry.
The concept of revealed comparative advantage is similar to that of
economic base theory, which is the same calculation, but considers employment rather than exports.
Example: in 2010, soybeans represented 0.35% of world trade with exports of $42 billion. Of this total, Brazil exported nearly $11 billion, and since Brazil's total exports for that year were $140 billion, soybeans accounted for 7.9% of Brazil's exports. Because 7.9/0.35 = 22, Brazil exports 22 times its "fair share" of soybean exports, and so we can say that Brazil has a high revealed comparative advantage in soybeans.
References
* Balassa, B. (1965), ''Trade Liberalisation and Revealed Comparative Advantage'', The Manchester School, 33, 99-123.
Utkulu and Seymen (2004) ''Revealed Comparative Advantage and Competitiveness: Evidence for Turkey vis-à-vis the EU/15''
Obtain RCA for predefined Product Groups like SITC Revision 2 Groups, Sector classification based on HS or UNCTAD's Stages of processing i
in WITS Indicators by Product Group page
World Integrated Trade Solution ''Calculate Revealed Comparative Advantage using UNSD COMTRADE data''
;Notes
International trade theory
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