The VWRCA Index: Measuring a Country’s Comparative Advantage and Specialization in Services. The Case of Poland

Abstract

In the extant body of literature on the servitization of the economy, on the one hand, and determinants of growth and development, on the other, the classic question of revealed comparative advantage (RCA) plays a prominent role. Regardless of the popularity, relevance, and validity of the use of the RCA as a part of multivariate queries on the above topics, this paper argues that the RCA alone offers a rather static insight into a country’s economic performance. Most importantly, the classic take on the RCA does not allow us to query a country’s comparative advantage and degree of specialization in the services sector. By inserting itself in the broader discussion on ways of bypassing the limitations inherent in the classic RCA index, this paper proposes a novel take on the RCA index, i.e., the Visvizi–Wosiek RCA (VWRCA) index, and, subsequently, applies it to the study of the evolution of the services sector in Poland over the period 2010–2019. The added value of the VWRCA index is threefold. (i) By recognizing the increasing role of services in the global economy, it serves as a useful tool in queries aimed at examining the structure of a given economy, the degree of specialization in the production of certain services, and the real revealed comparative advantage a country has in the production of a certain group/category of services. (ii) By focusing solely on services, the VWRCA index allows us to examine the volume and velocity of trade in services independently from the volume of trade in goods. (iii) Due to the resulting methodological accuracy, it enables the inclusion of a temporal dimension in the analysis, which in turn gives cues as to specific developments and the actual performance of a given economy regarding the evolution of the services sector.