Revealed comparative advantage
Encyclopedia
The revealed comparative advantage is an index
Index (economics)
In economics and finance, an index is a statistical measure of changes in a representative group of individual data points. These data may be derived from any number of sources, including company performance, prices, productivity, and employment. Economic indices track economic health from...

 used in international economics
International economics
International economics is concerned with the effects upon economic activity of international differences in productive resources and consumer preferences and the institutions that affect them...

 for calculating the relative advantage or disadvantage of a certain country in a certain class of goods or services as evidenced by trade flows. It is based on the Ricardian comparative advantage
Comparative advantage
In economics, the law of comparative advantage says that two countries will both gain from trade if, in the absence of trade, they have different relative costs for producing the same goods...

 concept.

It most commonly refers to an index introduced by Béla Balassa
Béla Balassa
Béla Balassa was a Hungarian economist and world-renowned professor at Johns Hopkins University; most famous for his work on the relationship between purchasing power parity and cross-country productivity differences .Balassa received a law degree from the University of Budapest...

(1965):

RCA = (Eij / Eit) / (Enj / Ent)

where:
E Exports
i Country index
n Set of countries
j Commodity index
t Set of commodities


A comparative advantage is “revealed”, if RCA>1. If RCA is less than unity, the country is said to have a
comparative disadvantage in the commodity or industry.
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