chap1 m8-rca

Concept of Comparative Advantage Measure of Revealed Comparative

Advantage Assessment of Vietnam’s RCA Comparison of Vietnam’s RCA with other

ASEAN countries

Ricardian theory and Heckscher-Ohlin (H-O) theory.

The Ricardian theory assumes that comparative advantage arises from differences in technology across countries

The H-O theory attributes comparative advantage to cost differences resulting from differences in factor prices across countries

First formally introduced: The Balassa Index (1965)

Has been revised and modified an excessive number of measures now exist

Leisner (1958): RCA1 = Xij / Xnj

Balassa (1965): RCA2 = (Xij / Xit) / (Xnj / Xnt) The “own” country trade performance only

index: RCA3 = (Xij - Mij) / (Xij + Mij)

Another version of Balassa index: RCA4 = (Xij / Xit) / (Mij / Mit)

Data: Revision 3 of the Standard International Trade Classification (SITC). Statistical Program of the WTO

1 Primary products 2 Manufactures3 Other products

Adopt Balassa Index RCA2

Vietnam Malaysia Philippines SingaporeThailand Indonesi

a

Food X X X* X* X X

Raw materials

X X X X

Fuels X X X

Mining products

X X

Machinery, trans equip

X X X X**

Office and telec equip

X X X X

Textiles X X X

Clothing X X X X X

With the gradual liberalization of external trade restrictions and exchange controls, Vietnam’s general export patterns have shifted from a position of CA in both resource- and labor-intensive products to labor-intensive products

Vietnam appears to have dominant comparative advantage in clothing, food and fuels, even though this dynamics has been changing.

Vietnam has substantial comparative disadvantage in most manufactured goods. Similar to the situation of Indonesia in this aspect, Vietnam needs a clear industry strategy in order to catch up with our neighbor countries in the technology and or capital intensive industries.