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Revealed Comparative Advantage

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)

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Revealed Comparative Advantage

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  1. Revealed Comparative Advantage

  2. 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

  3. 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.

  4. (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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