Chapter 3 Revealed Strength

In this Chapter we argue that, in a market economy environment, current strength is a good predictor of future strength in producing and exporting certain products. Current strength indicates that crucial factors are available and their prices are appropriate, that knowledge and a network of suppliers are established and that the regulatory environment is conducive. While having a comparative advantage in a product provides some indication that a sector might grow in a country, the absence of a revealed comparative advantage does not imply that a country is unable to develop new strengths in the future. One of the building blocks of future comparative advantage – especially in new technologies – is innovation. Thus, countries that focus their patenting activity on specific technologies are likely to also have a comparative advantage in exporting the corresponding products.

Revealed strength in exports and technology

We first investigate which countries are already specialised in our four low-carbon technologies in term of trade and innovation. We focus on two indicators of relative strength

• Revealed comparative advantage (RCA) assumes that market-based economies reveal their underlying comparative advantages by exporting those goods and services in which they are comparatively good

• Revealed technology advantage (RTA) is the equivalent to the revealed comparative advantage in terms of patenting.