Fortunately, however, the miracle of comparative advantage is one of the most incredible ideas ever summoned forth. Revealed Comparative Advantage Index. Unlike comparative advantage, which is determined by largely unchangeable factors, competitive advantage can be created. Even if one party can do more of everything than the other party, both can still gain from specialization and trade due to comparative advantage. A comparative advantage indicates an area where specialization should occur in order to increase total production. Tutorial on Comparative Advantage. Definition: The RCA index is defined as the ratio of two shares. When it comes to calculating opportunity cost there are 2 methods; depending on whether you are looking at outputs (with fixed inputs) or inputs (with fixed outputs). 1. Nations that are blessed with an abundance of farmland, fresh water, and oil reserves have an absolute advantage in … Assume that the comparative-cost ratios of two products—baby formula and tuna fish—are as follows in the nations of Canswicki and Tunata: Canswicki: 1 can baby formula = 5 … Comparative advantage is the economic reality describing the work gains from trade for individuals, firms, or nations, which arise from differences in their factor endowments or technological progress. Balassa Index (or Revealed Comparative Advantage, RCA): 2001-2008. Revealed comparative advantage indices (RCA) use the trade pattern to identify the sectors in which an economy has a comparative advantage, by comparing the country of interests’ trade profile with the world average. Optimisation and Theory of Comparative Advantage. It is a more dynamic, strategic concept. By Dan Jacoby. The idea to determine a country’s 'strong' sectors by analyzing the actual export flows was pioneered by Liesner (1958). Measures of revealed comparative advantage (RCA) have been used to help assess a country’s export potential. Comparative Advantage vs. Absolute Advantage Absolute advantage is anything a country does more efficiently than other countries. … The typical approach to computing RCA (Revealed Comparative Advantage) is the Balassa definition: ... Do I make correct conclusions about international trade (and ways to increase GDP) from the expedenture approach formula for GDP? in practice we measure comparative advantage indirectly. Then, the good that is specialized in can be traded for the other good. If it weren't for small miracles the world would be a very boring place indeed and economics would be considerably more "dismal" than it is. 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