On the Empirical Distribution of the Balassa Index

The concept of revealed comparative advantage as measured by the Balassa index is widely used in practice to determine a country's weak and strong sectors. Interpreting the Balassa index is difficult, however, in view of the limited knowledge to date on the distribution of this index. We analyze the empirical distribution of the Balassa index and its stability and properties over time, using Japan- European Union trade data. It appears that the distribution is relatively stable over time and that the widely used rule that "a Balassa index above one" identifies a strong sector, selects about one-third of all industries. On the other hand, the distribution appears to differ markedly across countries.