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Constructing Aggregated Revealed Comparative Advantage Index of a Country

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  • Satyendra Nath Chakrabartty

Abstract

The measures of revealed comparative advantage (RCA) with multiplicative specification and dependency on world trade of export items are incomparable across time and places. Intra-country comparisons by Balassa RCA and its variants are problematic, calling for a method of aggregating RCA of all sectors of a country reflecting the overall export potential of the country. Overall RCA of a country ( R C A t i ) is necessary to know the country’s RCA of all the export items as a function of trade flows relative to a point of reference, that is, a base period. The article proposes geometric aggregation of the ratio of RCA at the current period over the base period for each sector to get R C A t i by a continuous, monotonically increasing function of time, satisfying time-reversal test, formation of chain indices and generates time-series data. Progress path of R C A t i and similar path of j th sector may help policymakers to decide on appropriate action for the economy and individual sectors. Distribution of R C A t i will approach lognormal. Knowledge of distributions of R C A t i for different countries helps to have a better inter-country comparison. The similarity of two RCA curves may be evaluated by similarity measures. An empirical illustration of the proposed method is given. JEL Codes: C43, F14

Suggested Citation

  • Satyendra Nath Chakrabartty, 2023. "Constructing Aggregated Revealed Comparative Advantage Index of a Country," Journal of Asian Economic Integration, , vol. 5(1), pages 64-77, April.
    • Handle: RePEc:sae:jfasei:v:5:y:2023:i:1:p:64-77
    DOI: 10.1177/26316846221147583
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    More about this item

    Keywords

    Revealed comparative advantage; Balassa index; geometric mean; trade policy; time-reversal test;
    All these keywords.

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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