Appendix 3: Definition of Concepts Related to Export Analysis
- Nagwa Riad, Luca Errico, Christian Henn, Christian Saborowski, Mika Saito, and Jarkko Turunen
- Published Date:
- January 2012
The Export Similarity Index (ESI) measures the extent of overlap in countries’ export structures and thus provides a sense of the competitive pressures faced by countries at different points in time. The ESI after Finger and Kreinin (1979) is calculated as:
It measures the similarity of export patterns of countries “a” and “b” to market “c” (world) and takes the value of one if the commodity distribution of a’s and b’s exports is identical.
A complementary construct is the Revealed Comparative Advantage (RCA) index, which measures the intrinsic advantage of a particular export sector/product consistent with changes in an economy’s relative factor endowment and productivity. The RCA index is based on Balassa’s (1965) measure of relative export performance by country and sector/product. The RCA index is calculated as:
where Xij is exports of country i of product j, Xjw is global exports of product j, Xi is total exports of country i, and w is total global exports. A value greater than one indicates the country has a revealed comparative advantage in that product. The assumption here is that trade patterns reflect intercountry differences in relative costs as well as nonprice factors, and therefore “reveal” the comparative advantage of trading countries.