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.