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The typical approach to computing RCA (Revealed Comparative Advantage) is the Balassa definition:

$RCA=\frac{\frac{X_cp}{\sum_{p=1}^{P}{X_cp}}}{\frac{\sum_{c=1}^{C}{X_cp}}{\sum_{c=1,p=1}^{C,P}{X_cp}}}=\frac{Product Export Share in Country C}{Product Export Share in World Trade}$

However, given disaggregated product level trade data between origin (i) and destination (j) countries there are some lines in the data that aren't always attributed directly between two countries, and may have an Areas, nes partner such as:

1962, USA, United States, ., Latin America NES, 0011, 34.298

In this case the USA is exporting $34.298 to Latin America NES. Given this relationship we know the US has exported some items (with productcode 0011) to Latin America but we don't know it's exact partner country j.

When summing over j, to construct Total Country Exports it is possible to include all of these items as you sum over j, despite the fact they will never appear in the numerator of the RCA expression (as we are not typically interested in Latin America NES and keep countries only).

Question

When computing the denominators of the RCA expression should we:

  1. Include these in the aggregate values Total Country Export = $\sum_{p=1}^{P}{X_cp}$ and Total World Export = $\sum_{c=1,p=1}^{C,P}{X_cp}$
  2. Discard these values and only aggregate values (across j) based on those that we can properly measure and will appear at some point in the numerator. (i.e. only considering trade between defined countries)
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  • $\begingroup$ What does NES mean in Latin America NES? $\endgroup$ – Hexatonic Nov 22 '18 at 18:25
  • $\begingroup$ NES = Not Elsewhere Specified $\endgroup$ – sanguineturtle Nov 24 '18 at 3:11

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