South African exports under AGOA
Revealed Comparative Advantage
Let the trade data tell you what a country is good at, instead of deciding in advance.
This compares a product’s share of a country’s exports against that product’s share of world exports. If a country’s exports are more concentrated in a product than the world average is, the country is said to have a revealed comparative advantage in it.
Revealed is the important word. The measure infers competitiveness from what a country actually sells, rather than from a theory about what it ought to sell given its resources. It lets the data answer a question that is otherwise answered by assertion.
What it cannot do
Trade data reveals the effects of subsidies, protection, transport advantages and historical accident just as readily as it reveals genuine underlying strength. A high score is a fact about what a country exports, not a verdict on why, and reading it as natural endowment is the most common way to misuse it.
The equation
RCAij = ( xij / Xi ) ÷ ( xwj / Xw )
- xij / Xi
- product j’s share of country i’s exports
- xwj / Xw
- that same product’s share of world exports
- RCA > 1
- the country’s exports lean towards this product more than the world’s do
The same shape as the trade intensity index: a country’s own proportion, set against the world’s proportion. Most of the useful trade measures are one ratio divided by another.
Further reading
- Balassa, B. (1965). "Trade Liberalisation and ‘Revealed’ Comparative Advantage", The Manchester School. Read it.The paper the measure is named after.
- WTO and UNCTAD (2012). A Practical Guide to Trade Policy Analysis. free Read it.The competitiveness chapter, for how it is used in practice.
From An analysis of South Africa exports to the United States under the African Growth Opportunity Act, MCom in Management Practice (Trade Law and Policy), University of Cape Town, 2015. Read it in OpenUCT.