Revealed comparative advantage and the alternatives as measures of international specialization

This paper provides an analysis of Balassa’s ‘revealed comparative advantage’ (RCA). It shows that when using RCA, it should be adjusted such that it becomes symmetric around its neutral value. The proposed adjusted index is called ‘revealed symmetric comparative advantage’ (RSCA). The theoretical discussion focuses on the properties of RSCA and empirical evidence, based on the Jarque– Bera test for normality of the regression error terms, using both the RCA and RSCA indices. We compare RSCA to other measures of international trade specialization including the Michaely index, the Contribution to Trade Balance, Chi Square, and Bowen’s Net Trade Index. The result of the analysis is that RSCA—on balance—is the best measure of comparative advantage.