Revealed comparative advantage
Also called: RCA, Balassa index · Topic: International Trade Policy, WTO and Intellectual Property · NCERT: Beyond NCERT
Meaning
Revealed comparative advantage (RCA) measures comparative advantage from a country's actual exports. Bela Balassa developed it in 1965, so it is also called the Balassa index. RCA = (Xᵢⱼ / Xᵢ) ÷ (Xwⱼ / Xw) This means the share of good j in country i's exports divided by the share of good j in world exports. RCA > 1 means the country has a comparative advantage in that good.
Example
Suppose rice is 4% of a country's exports but only 1% of world exports. Its RCA is 4 ÷ 1 = 4, a clear advantage. India shows RCA > 1 in rice, pharmaceuticals, gems and jewellery, textiles and IT services.
Don't confuse with
- Comparative advantage (Ricardo): this theoretical idea is based on opportunity cost. RCA is a measure calculated from real export data.
Related concepts
- Absolute advantage
- Comparative advantage
- Gains from trade
- Autarky
- Heckscher-Ohlin theory
- Stolper-Samuelson theorem
- Leontief paradox
- Intra-industry trade
- New trade theory
- Gravity model of trade