Revealed Comparative Advantage

Revealed Comparative Advantage

Revealed comparative advantage (RCA) is based on Ricardian trade theory, which posits that patterns of trade among countries are governed by their relative differences in productivity. Although such productivity differences are difficult to observe, an RCA metric can be readily calculated using trade data to "reveal" such differences. While the metric can be used to provide a general indication and first approximation of a country's competitive export strengths, it should be noted that applied national measures which affect competitiveness such as tariffs, non-tariff measures, subsidies and others are not taken into account in the RCA metric.

RCA radar plots

The plots presented below are designed to present a full picture of any country's revealed comparative advantage in producing and exporting a full range of products in a given year. Products plotted are SITC revision 3 product groups at the 3-digit level using data from the trade matrix available in our Data Center. The various sectors of the economy, according to the SITC classification, are shown in different colors and labeled. The revealed comparative advantage of exported products are indicated in the plot for all product groups which have an RCA greater than 1. The product group name, RCA value and export level are readily made visible in the plot center and in the right panel by placing the mouse cursor over any product.

The RCA metrics

Country A is said to have a revealed comparative advantage in a given product i when its ratio of exports of product i to its total exports of all goods (products) exceeds the same ratio for the world as a whole:

That is,

Where

• P is the set of all products (with i∈P),
• X_Ai is the country A's exports of product i,
• X_wi is the worlds's exports of product i,
• Σ_j∈PX_Aj is the country A's total exports (of all products j in P), and
• Σ_j∈PX_wj is the world's total exports (of all products j in P).

When a country has a revealed comparative advantage for a given product (RCA >1), it is inferred to be a competitive producer and exporter of that product relative to a country producing and exporting that good at or below the world average. A country with a revealed comparative advantage in product i is considered to have an export strength in that product. The higher the value of a country’s RCA for product i, the higher its export strength in product i.