Problem Set 1: Revealed Comparative Advantage (RCA)
a. What is the Revealed Comparative Advantage (RCA) Index? Discuss the advantages and disadvantages of this index as a tool for trade policy analysis.
b. For two countries of your choice, calculate the normalized RCA index for every year between 2004-2006. Repeat the exercise for the period 2014-2016. What are your findings from conducting this analysis?
The TWO countries I will be using are BRAZIL and CHILE.
These are the HS Codes from the UNCOMTRADE for the items that will be compared: 040299 and 0204
c. For the two countries identified above, draw a scatter plot in which each point represents a sector and normalized RCA values for 2004-2006 are on the horizontal axis and 2014- 2016 values are on the vertical axis.