Comparative Advantage Dynamism of Indonesian Export Products

By Setyari, Ni Putu Wiwin; Widodo, Tri | The Journal of Developing Areas, January 1, 2016 | Go to article overview

Comparative Advantage Dynamism of Indonesian Export Products


Setyari, Ni Putu Wiwin, Widodo, Tri, The Journal of Developing Areas


(ProQuest: ... denotes formulae omitted.)

INTRODUCTION

Classical trade theory states that a country will tend to specialize in products that have a comparative advantage. Labor-intensive products in its production should be produced in developing countries that tend to be rich labor where labor costs are relatively low and products that use capital-intensive techniques should be produced in the rich and developed countries where the cost of capital is relatively low. Conditions needed to allow a developing country to move from labor-intensive industries to sectors with more advanced technology and modern not only the private sector dynamic change as a driving force. History shows if the government policy as a catalyst for private sector growth is needed (Lin and Chang, 2009) by adopt various methods to promote industrialization and technological upgrading as well as encourage long-term economic improvement in the productivity of production factors and industry.

Several studies confirm if comparative advantage has dynamic in nature especially after applied deeper trade integration (Imbz and Wacziarg, 2003; Beine and Coulombe, 2004; Sanguinetti, 2004). Studies conducted by Balassa and Noland (1989) showed a dramatic change in the pattern of specialization in Japan and America from labor intensive products to capital-intensive products and both showed improvement with a comparative advantage in high-tech products. Widodo (2009) tested the dynamism of comparative advantage in the region of ASEAN + 3 and discover if an increase in comparative advantage as a whole is driven by the increase higher comparative advantage in the products group that do not have or only have low comparative advantage previously, as a result of high productivity growth, as happened in Japan.

As a country with large population, the industrial structure Indonesia tends to be labor intensive. Compared with other ASEAN countries, the population of Indonesia is the largest with an average growth of 1.48% per year.This paper tries a closer look at Indonesian industrial structure as well as the dynamism of its comparative advantages change. Using statistical data medium and large industrial firms, the comparative advantage of each industry group in the 3-digit level will be trend and analyzed. Analysis using the Spearman's correlation rank shows if there is a fairly significant change in the Indonesian structure of export products in the period1990-2012. Comparative advantage of Indonesian export products tend to be random or show an inverse rank order. It means some product which did not have comparative advantage previously become product with high comparative advantage.

DATA AND METHODOLOGY

The main objective of this study is to see there a change in the structure of comparative advantage in the export of Indonesian products. This study used data began the period 1990 to 2012. The comparative advantage of a product from one country is usually indicated by the value of revealed comparative advantage (RCA). RCA index is calculated by (Bowen etal., 2012):

... (1)

where Xij shows export of product j from country i, Xwj is world total export of product, Xi is export total of country i, and Xw is world total export. If the RCA index is greater than one, then the product j is said to have a comparative advantage. Conversely, if under one product j do not have a comparative advantage. Because the RCA indices are not comparable on both sides of the neutral value (i.e one) then the RCA index is made to be symmetrical, and became known as symmetric revealed comparative advantage (RSCA) by (Laursen, 2015):

... (2)

RSCA index values can vary from one to minus one (-1 ≤RSCA≤1). RSCAij value of greater value than zero means the country i has a comparative advantage in product j. Conversely, if the value RSCAij smaller than zero indicate if country i do not have a comparative advantage in product j.

RCA or RSCA is a measure of international specialization and is not a measure of performance or level of competition. …

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