One problem with the basic Balassa index is that it is not symmetrically distributed around the neutral value 1.0, ranging from0 to 1 for comparative disadvantage. . .

Since its initial formulation, RCA indexes have been widely used to track specialization with regard to participation in the international economy.

The index most commonly used to measure RCA is the Balassa index (BI), which was developed and popularized by Bela Balassa (1965, 1989). . .

Revealed comparative advantage (RCA) is an empirical measure of the extent to which a given country specializes in the export of a particular product or range of products. . .

Empirical work on real exchange rates involves many judgments about how to construct real exchange rate measures. 

Despite much work, little is known about the empirical determinants of real exchange rates.

Most theoretical approaches to understanding real exchange rates focus on the price of goods.

The real exchange rate, a linchpin of international economics, tells us about the overall costs in one country compared with another.

We next consider an imperfect substitutesmodel in the ‘‘large’’ country case, allowing for terms of trade effects. This model is presented in figure 2.

We will first consider a perfect substitutes model with ‘‘second-best’’ effects in the ‘‘small’’ country case.