Brief Notes on Specialisation Indicators of Comparative Advantage Principle
RCAal = Revealed Comparative advantage of Country I in product A.
X1a= Exports of product A from country I.
Xaz = Exports of product A from reference area: such as world/Asia/ASEAN and so on.
X1 = Total exports of country I.
Xz = Total exports of the reference area. This measure actually relates to the normalised market share of the country in the context area.
Illustration of the Measure :
Suppose, total exports of Country I is valued at 200 billion U.S. dollars. Of which, exports of product A is valued at 30 billion U.S. dollars. Total world exports amounted to the 2500 billion U.S. dollars. Of which world exports of product A is estimated to be 200 billion U.S. dollars.
A country’s specialisation in exports of a product is perceived through comparison of RCA with other competitive nations in the reference area, this measure however, has the drawback of asymmetry.
Another, popular measure is normalized trade balance (NTB) approach:
It follows that the NBT’s the ratio of the trade balance to the total trade value (X + M). it is a indicator of the country’s performance. In the above example, we may work out HBT, thus: