Revealed comparative advantage and the alternatives as measures of international specialization

Abstract

This paper provides an analysis of Balassa’s ‘revealed comparative advantage’ (RCA). It shows that when using RCA, it should be adjusted such that it becomes symmetric around its neutral value. The proposed adjusted index is called ‘revealed symmetric comparative advantage’ (RSCA). The theoretical discussion focuses on the properties of RSCA and empirical evidence, based on the Jarque–Bera test for normality of the regression error terms, using both the RCA and RSCA indices. We compare RSCA to other measures of international trade specialization including the Michaely index, the Contribution to Trade Balance, Chi Square, and Bowen’s Net Trade Index. The result of the analysis is that RSCA—on balance—is the best measure of comparative advantage.

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Notes

  1. 1.

    A fuller discussion of this topic is present in Sect. 3.

  2. 2.

    In the remainder of the paper we work with 22 countries since we do not have complete data for the Czech Republic, Hungary, Korea, Mexico and Poland for the entire time-period.

  3. 3.

    Another and very similar measure to the RSCA has been applied by Hariolf Grupp in various publications (see e.g., Grupp 1994, 1998) in the context of technological specialization. RPA or Revealed Patent Advantage can be defined as:

    RPA ij  = (RTA 2  1)/(RTA 2 + 1) × 100, where RTA is Revealed Technological Advantage, calculated similar to RCA (see Eq. 1) but based on US patent data.

  4. 4.

    It can be argued that e.g. the relative strength of the Danish shipyards is, at least partially, due to the strength of the shipping industry (and perhaps vice versa) (see, Linder 1961; Andersen et al. 1981; Fagerberg 1995). However, it would be difficult to argue that Denmark has no comparative advantage in building ships and boats given the high level of exports from this sector.

  5. 5.

    The problem—as mentioned earlier—is that the χ2 measure takes high values both if a country is (much) more specialized in a sector, and if a country is (much) less specialized in a sector.

  6. 6.

    The years: 1988–1991; 1991–1994; 1994–1997; 1997–2000; 2000–2003; and 2003–2006.

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Correspondence to Keld Laursen.

Additional information

This paper draws on Laursen (2000a). The author thanks Mario Pianta for the suggestion to write a paper on this topic, and two reviewers for this journal for excellent comments and suggestions for improvements. The usual caveats apply.

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Laursen, K. Revealed comparative advantage and the alternatives as measures of international specialization. Eurasian Bus Rev 5, 99–115 (2015). https://doi.org/10.1007/s40821-015-0017-1

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Keywords

  • Revealed comparative advantage
  • International specialization

JEL Classification

  • C43
  • F14