Revealed Comparative Advantage

of Indian Exports
 Revealed Comparative Advantage
 RCA - Concept first developed by Balassa in 1965.

 It is a measure of the relative export performance by a country for a

specific export product.

 A country is said to have a revealed comparative advantage in a

particular export when the share of that product in a country’s total
exports is larger than the share of that product in the global trade
(yielding an RCA greater than one).

 It provide useful information about potential trade prospects with

new partners.
 Countries with similar RCA profiles are unlikely to have high
bilateral trade intensities unless intra-industry trade is involved.
Revealed Comparative Advantage
 The RCA index of country i for product j is often measured by the
product’s share in the country’s exports in relation to its share in
world trade:
RCAij = (xij/Xit) / (xwj/Xwt)
Where xij and xwj are the values of country i’s exports of product j and world
exports of product j.

Xit and Xwt refer to the country’s total exports and world total
exports.

 A value of less than unity - implies that the country has a revealed
comparative disadvantage in the product.
 If the index exceeds unity - the country is said to have a revealed
comparative advantage in the product.
Revealed Comparative Advantage
 Using RCAs, India’s major export products are classified into four
main categories: “Classic”, “Marginal”, “Disappearing”, and
“Emerging” products.
 Classic - A “classic” product is defined as a product in which India
had RCAs in both the 1990-94 and 2007-11 sub-periods. (i.e. both at
the start and at the end of the sample period)
 Marginal - “Marginal” products are those in which India never had an
RCA.
 Disappearing - “Disappearing” products are those in which a country
had an RCA at the start, but not at the end of the sample period.
 Emerging - “Emerging” products are those in which a country only
developed an RCA at the end of the sample period.
Revealed Comparative Advantage
 Classic Products
• Account for over 60 percent of India’s export basket.
• Gems and jewellery, tea, garments, and leather etc.
• Average income level associated with classic product is Rs11,734.
 Marginal Products
• Account for over 25 percent of India’s export basket.
• medium- and high-tech manufacturing category.
• Average income level associated with marginal product is Rs19,000.
 Disappearing Products
• Account for almost 4 percent of India’s export basket.
• Average income level associated with disappearing product is Rs12,225.
 Emerging Products
• Account for almost 10 percent of India’s export basket.
• Number is relatively small, but these products are of high productivity.
• Average income level associated with emerging product is Rs12,673.