Balassa index

Balassa index can be used to measure revealed competitive advantage of a country. It was defined by Bela Balassa and Mark Noland.

$\text{RCA}_{ij} = \dfrac{\dfrac{x_{ij}}{X_i}}{\dfrac{x_{aj}}{X_a}}$

where:
x_ij denotes the export of products j from country i
X_i denotes the total export from country i
x_aj denotes the total export of product j from reference area, say World
X_a denotes the total export from reference area.

On the basis of this index, a country is defined as being specialized in exports of a certain product if its market share in that product is higher than the average or, equivalently, if the weight of the product of the country's exports is higher than its weight of the exports of the reference area. A country reveals comparative advantages in products for which this indicator is higher than 1, showing that its exports of those products are more than expected on the basis of its importance in total exports of the reference area.

References

Balassa, Bela; Marcus Noland (1989). "Revealed Comparative Advantage in Japan and the United States". Journal of International Economic Integration 2 (2): 8–22. doi:10.11130/jei.1989.4.2.8.