UGM June 2019 Q9
0. Balassa Index is often used as a tool to measure the:
- Option : A
- Explanation : The revealed comparative advantage (RCA)—also called the balassa index, after Balassa (1965)—is an index that shows the relative
advantage or disadvantage of a country in exporting a commodity as indicated by actual export patterns relative to those of all other
countries in the world. It is defined as follows:
RCA = (Eij/Eiw)/(Ewj/Ewn)
where Eij refers to exports of commodity j by the country i; w is the set of countries, and n is the set of all commodities. A country has a revealed comparative advantage in commodity j if the RCA is greater than 1 and a comparative disadvantage in commodity j if the RCA is less than 1.
While the RCA is an indirect measurement of comparative advantage based on trade patterns that are actually revealed and observed in the trade data, the domestic resource cost (DRC) directly measures a country’s comparative advantage in an industry based on factor prices, the foundation of comparative advantage.
