What Is Revealed Comparative Advantage?

Explicit comparative advantage index, also called export performance index, is a measure often used when analyzing whether a certain country or region has a comparative advantage.

Explicit comparative advantage index

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Explicit comparative advantage index, also called export performance index, is a measure often used when analyzing whether a certain country or region has a comparative advantage.

The meaning of the Index of Revealed Comparative Advantage (RCA) is: the ratio between the proportion of a country's export goods to its total export value and the proportion of the world's total exports of such goods in the world. RCA> 1, it means that the country's goods have a dominant comparative advantage; RCA <1, it means that the country's goods have no dominant comparative advantage.

Its calculation formula is:

RCA = (Xi / Xt) / (Wi / Wt)

In the formula, Xi represents the export value of a country's commodity; Xt represents the total export value of a country's commodity; Wi represents the export value of a certain commodity in the world; Wt represents the total export value of world commodity.

Explicit comparative advantage is dynamic. Dynamic dominant comparative advantage can be measured by the dynamic comparative advantage index (Cr). It refers to the ratio of the RCA index in a period to the RCA index in the previous period. It can better reflect the adjustment and change of the dominant comparative advantage in the region. If the cr value is greater than 1, it indicates that the region's dominant comparative advantage in this category of goods is increasing; if the cr value is less than 1, it indicates that its comparative advantage is weakening. Horizontal comparison, if the cr value of one industry is greater than the cr value of another industry in the same period, it indicates that the advantage of this industry is growing faster than the other industry, and this industry may quickly grow into a new advantage industry. Explicit comparative advantage index and dynamic comparative advantage index are widely used in international trade research.