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.
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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.
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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: