COMPARATIVE ADVANTAGE OF ASEAN COUNTRIES IN THE LATE 1990S

Goh Pek Chen

ABSTRACT

Indonesia, Malaysia, Philippines, Singapore and Thailand had comparative advantage in most of their
major exports in 2000. They also tend to have common comparative advantage among themselves.
Over the period 1996 to 2000, they had also lost their comparative advantage in some of the major
exports, especially for Malaysia and the Philippines.

Key words: ASEAN, Comparative Advantage

INTRODUCTION

The globalization proc ess and the rapid spread of technology has brought about a more competitive
environment as markets become increasingly more open, with an increasing number of new entrants
to the market. Competitiveness is generally equated with the well performance of an economy. It can
be achieved through raising productivity so as to enhance the ability of the economy to generate more
output from a given supply of inputs. The OECD has defined competitiveness for a nation as the
degree to which a country can produce goods and services which meet the test of international
markets, while its citizens earn a standard of living that is both rising and sustainable in the long run.
As competitiveness relates to competition, it also implies a comparative element, with the implic ation
that competitiveness or more precisely export competitiveness, is essentially about securing market
share. Increasing market share alone, however, is not sufficient to achieve sustainable export
competitiveness. Other conditions such as the ability of an economy to diversify its exports, to
achieve high rates of export growth over time, to upgrade technological content of export activities
and to expand the domestic industries’ base are essential.

Exports have been an important sector for the growth of the five major Asian countries, namely
Indonesia, Malaysia, Philippines, Singapore and Thailand. Average real GDP growth for the period
1990-2000 for Indonesia was 4.2%, Malaysia: 7%, the Philippines: 3.3%, Singapore: 7.8% and
Thailand: 4.2%.1 The proportion of total exports to GDP for the period 1998-2000 was 42.2% for
Indonesia; 120.4% for Malaysia; 53.3% for the Philippines; 167.7% for Singapore and 61.4% for
Thailand. 2 Malaysia, Singapore and Thailand were among the top 20 economies with the larg est
export market share in 2000. 3 These countries are known for their rich natural resources, especially in
oil, gas and agricultural products. Extensive industrialization process that took place since the early
1970s in these countries had diversified their export structures, though at different degree of success.
Significant increase in the exports of manufactured products in these countries has been mainly due to
the influx foreign direct investment (FDI). In 2000, FDI stock as percentage to GDP in Singapore was
103.8%. Similar ratios for Malaysia was 58.8%, Indonesia 39.6%, Thailand 20% and the Philippines
16.6%.4

OBJECTIVE

The objective of this paper is to study the comparative advantages of the major exports of Indonesia,
Malaysia, Philippines, Singapore and Thailand. Major issues to identify are: (1) whether each country
has comparative advantages in her major exports; (2) whether these countries have common
comparative advantages in their major exports and (3) whether the comparative advantages of each
major export had improved or deteriorated from 1996 to 2000.

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METHODOLOGY

In order to measure the performance of a country in gaining market share in international trade of
various products, the indicator used here is revealed comparative advantage (RCA) and its changes
over a period (C R). In the 19th century, David Ricardo popularized the classical theory of the
comparative advantage. According to this theory, assuming labor is the only factor and it is
homogenous, real cost per unit of product remains constant, a country has comparative advantage in
producing a product if the opportunity cost of producing the product is smaller than that of another
country. Then the country gains by specializing in producing and exporting products that she has
comparat ive advantages in.

The RCA calculation, pioneered by Balassa (1965, 1979, 1986), assumed that the pattern of
comparative advantage can be observed from post-trade data. According to Balassa’s argument,
countries have different opportunity costs and they specialize in production and trade. Balassa’s RCA
index compares the export share of a certain product in a country with the export share of the product
in the world market. The nature of specialization is such that the product in which its comparative
advantage will be stronger will dominate each country’s export structure.
The formula for RCA is as follows:

RCA = X ji Xwi
______ ÷ ______
Xj Xw

Where x, i, j and w stand for export, product, country and world, respectively. RCA greater than one
implies that the country has comparative advantage in that product. RCA smaller than one means the
country has comparative disadvantage in that product. CR measures the change in RCA over a period
of time (the ratio of RCA for a period divided by RCA for a previous period). CR indicates if a country
is gaining more comparative advantage (when C R is greater than one) or losing comparative advantage
(when CR is smaller than one).

The use of trade data to calculate RCA has been a common tool in empirical analysis in international
trade. However, a few points need to be noted. Changes in RCA cannot distinguish if it is the result
from factor endowment or from certain trade policies. Besides, RCA does not show if the country has
comparative advantage in producing or in assembling the product for export. Further more, with the
presence of trade barriers, RCA can only be an imperfect guide to the pattern of comparative
advantage of a country.

The data used in this study is obtained from the COMTRADE database of the United Nations
Statistics Division. Data covered the period from 1996 to 2000. The products are classified according
to the Standard Industrial Trade Classification (SITC). Major export for each country is defined as
product group in SITC 3-digits that constituted at least 1% of the country’s total merchandise export
in 2000.

For example if the export of footwear constituted 1% of Thailand export in 2000, then footwear is
included in the study. The formula to work out the RCA for footwear is:

RCA Footwear = Export Footwear in Thailand World export Footwear

_______________________ ÷ ___________________
Total export in Thailand Total world export

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FINDINGS

The following tables show the RCA and CR for each country.

TABLE 1
Major Exports For Indonesia, RCA And CR
SITC Product group Country World RCA2000 RCA1996 CR
share % share %
343 Natural gas 10.0 9.7 10.1 11.5 0.9
333 Petrol./Bitum. Oil, crude 9.8 2 2.1 3.3 0.6
634 Veneer/Plywood/etc 3.7 13.8 14.3 25.1 0.6
752 Computer equipment 3.2 1.2 1.2 0.3 4.0
764 Telecomms equipment 2.8 0.9 0.9 0.7 1.3
422 Fixed veg oils not soft 2.7 27.5 28.4 20.4 1.4
641 Paper/paperboard 2.7 2.5 2.6 1.2 2.2
851 Footwear 2.7 4.6 4.7 6.2 0.8
283 Copper ores/concentrates 2.6 25.9 26.8 32.6 0.8
334 Heavy petrol/bitum oils 2.6 1.1 1.1 1.7 0.6
821 Furniture/stuff furnishg 2.4 2.6 2.7 2.2 1.2
841 Mens/boys wear, woven 2.2 4.2 4.4 3.6 1.2
321 Coal non-agglomerated 2.1 7.8 80.2 6.1 13.2
651 Textile yarn 2.1 5.2 5.4 3.4 1.6
842 Women/girl clothing wven 2.1 3.8 3.9 3.2 1.2
653 Man-made woven fabrics 1.8 4.5 4.7 4.4 1.1
845 Articles of apparel nes 1.8 2.2 2.3 2 1.1
36 Crustaceans molluscs etc 1.7 8.1 8.4 7.9 1.1
759 Office equip parts/accs 1.6 0.7 0.8 0.4 1.9
635 Wood manufactures nes 1.5 7 7.2 8.4 0.9
231 Natural rubber/latex/etc 1.4 25 25.9 29.6 0.9
763 Sound/TV recorders etc 1.3 3.4 3.5 4.8 0.7
776 Valves/transistors/etc 1.2 0.3 0.3 0.1 2.8
778 Electrical equipment nes 1.1 0.7 0.7 0.7 1.0
251 Pulp and waste paper 1.1 3.2 3.3 2.6 1.3
762 Radio broadcast receiver 1.0 4 4.1 3.2 1.3

Indonesia had 26 major exports that made up 69.5 percentage of total export in 2000. Her exports
were quiet evenly distributed between manufactured products (SITC 5 – 8): 35 percentage and 34
percentage of primary products: natural gas and petrol. Exports that had strong comparative
advantage were coal, copper, natural rubber and fixed vegetable oils. Indonesia contributed more than
25 percentage of world export of copp er and fixed vegetable oils. Valves/transistors, electrical
equipment, office equipment parts had comparative disadvantages. Of the 9 product groups that lost
comparative advantage over the period 1996 to 2000, 5 of them were primary products. Product that
had gained the most comparative advantage was coal for primary products and computer equipment
for manufactured products.

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 TABLE 2
Major Exports For Malaysia, RCA And C R
SITC Product group Country share % World share % RCA2000 RCA1996 CR
776 Valves/transistors/etc 19.1 6.9 4.5 5.9 0.8
759 Office equip parts/accs. 13.5 9.7 6.3 3.9 1.6
752 Computer equipment 7.3 4.2 2.7 2.1 1.3
764 Telecomms equipment nes 6.1 3 2.0 2.4 0.8
333 Petrol./Bitum. Oil, crude 4.0 1.3 0.9 1.2 0.7
343 Natural gas 3.1 4.7 3.1 3.5 0.9
762 Radio broadcast receiver 2.6 16.7 11.0 13.6 0.8
422 Fixed Veg oils not soft 2.6 42.8 28.0 35.2 0.8
772 Electric circuit equip 2.6 3 2.0 1.8 1.1
763 Sound/TV recorders etc 2.4 9.7 6.4 10.2 0.6
761 Television receivers 2.0 7.5 4.9 6.6 0.7
334 Heavy petrol/Bitum oils 1.9 1.2 0.8 0.7 1.1
821 Furniture/stuff furnishg 1.6 2.8 1.8 1.7 1.1
634 Veneer/Plywood/etc 1.5 8.9 5.8 8.8 0.7
778 Electrical equipment nes 1.4 1.4 0.9 0.6 1.6
248 Wood simply worked 1.1 4.5 3.0 4.1 0.7

Malaysia had 16 m ajor exports that constituted 72.9 percentage of her total export in 2000, dominated
by manufactured products. Two product groups: valves/transistors, and office equipment parts made
up almost 33 percentage of the total exports. Though valves/transistors were the major export,
Malaysia lost its comparative advantage. Been a large producer of palm oil, Malaysia contributed 42.8
percentage of world export of fixed vegetable oil and she also had strong comparative advantage in
producing this product. The other product that Malaysia had strong comparative advantage is radio
broadcast receivers. Crude petrol./bitumen, heavy petrol/bitumen oils and electrical equipment had
comparative disadvantages. Beside valves/transistors, other manufactured products that lost
comparative advantages were telecommunication equipment, radio broadcast receivers, sound/TV
recorders and television receivers.

TABLE 3
Major Exports For The Philippines, RCA And CR
SITC Product group Country share % World share % RCA2000 RCA1996 CR
776 Valves/transistors/etc 41.9 6.1 9.9 9.6 1.0
752 Computer equipment 11.7 2.7 4.4 2.1 2.1
759 Office equip parts/accs. 6.3 1.8 3.0 5 0.6
772 Electric circuit equip 4.1 1.9 3.1 1.1 2.8
764 Telecomms equipment nes 2.6 0.5 0.8 2.1 0.4
842 Women/girl clot hing wven 2.0 2.3 3.7 4.6 0.8
773 Electrical distrib equip 1.6 1.7 2.7 4.4 0.6
845 Articles of apparel nes 1.5 1.2 1.9 4.1 0.5
784 Motor veh parts/access 1.4 0.4 0.7 1 0.7
841 Mens/boys wear, woven 1.4 1.7 2.7 3.7 0.7
422 Fixed Veg oils not soft 1.2 7.7 12.5 21.2 0.6
57 Fruit/nuts, fresh/dried 1.1 1.8 2.9 4 0.7
334 Heavy petrol/bitum oils 1.1 0.3 0.5 0.7 0.6
821 Furniture/stuff furnishg 1.0 0.7 1.1 1.7 0.6

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The Philippines had 14 product groups that made up 78.8 percentage of her total export.
Manufactured products dominated the Philippines’ exports. Valves/transistors and computer
equipment already constituted 53.6 percentage of total exports in 2000. Products that the Philippines
had greater comparative advantages were fixed vegetable oils, valves/transistors and computer
equipment. She had comparative disadvantages in telecommunication equipment, motor vehicle
parts/access and heavy petrol/bitumen oils. Except three product groups: valves/transistors, computer
equipment and electrical circuit equipment, all major exports had lost comparative advantage in 2000.

Singapore had 9 major product groups as her major exports. All, except heavy petrol, were
manufactured products. They constituted 68.9 percentage of Singapore’s exports in 2000. Singapore
had comparative advantage in all her major exports with valves/transistors and computer equipment
had stronger comparative advantages than the others. Singapore was also a world major exporter of
valves/transistors and computer equipment. Though she had lost comparative advantage for the latter.
Besides, heavy petrol, office equipment parts and telecommunication equipment had lost comparative
advantages. Singapore gained comparative advantage in musical instrument.

TABLE 4
Major Exports For Singapore, RCA And CR

SITC Product group Country World RCA 2000 RCA1996 CR

share % share %

776 Valves/transistors/etc 25 12.7 5.9 5.1 1.2

752 Computer equipment 14.1 11.3 5.3 7.5 0.7
334 Heavy petrol/bitum oils 9.3 8.3 3.8 4.2 0.9
759 Office euquip parts/accs 8.2 8.2 3.8 4.6 0.8
764 Telecomms equipment nes 4.3 2.9 1.4 2.3 0.6
778 Electrical equipment nes 2.5 3.6 1.7 1.5 1.1

772 Electric circuit equip 2.4 3.9 1.8 1.7 1.1

898 Musical instrums/records 1.8 8 3.7 1.3 2.9
728 Special indust machn nes 1.3 2.5 1.2 0.7 1.7

Thailand had 23 product groups as her major exports. They made up 56.7 percentage of her total
exports, of which 13.3 percentage were primary products such as fish/shellfish, rice, crustaceans,
natural rubber, heavy petrol and sugar. Thailand was a world major exporter of natural rubber, rice
and fish/shellfish. She also had strong comparative advantages in these products. There were two
product groups that had comparative disadvantages: heavy petrol and electrical equipment. Thailand
lost comparative advantages in men/boys wear, footwear, jewelry, television receivers, computer
equipment and telecommunication equipment.

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 TABLE 5
Major Exports For Thailand, RCA And C R

SITC Product group Country World RCA2000 RCA1996 CR

share % share %
759 Office euquip parts/accs 9.4 4.8 4.4 3.4 1.3
776 Valves/transistors/etc 8.5 2.2 2.0 1.9 1.1
764 Telecomms equipment nes 3.1 1.1 1.0 1.3 0.8
37 Fish/shellfish, prep/pres 3.0 22.8 21.3 17.9 1.2
752 Computer equipment 2.9 1.2 1.1 2.6 0.4
36 Crustaceans molluscs etc 2.7 14 13.0 13.8 0.9
772 Elelctric circuit equipmt 2.7 2.2 2.1 1.5 1.4
42 Rice 2.4 33.4 31.1 29.7 1.0
231 Natural rubber/latex/etc 2.2 42.5 39.5 34.4 1.1
334 Heavy petrol/bitum oils 2.0 0.9 0.8 0.6 1.3
782 Goods/services vehicles 2.0 2.5 2.3 0.4 5.8
845 Articles of apparel nes 1.8 2.5 2.3 2.3 1.0
741 Mens/boys wear, woven 1.7 2.9 2.7 2.6 1.0
761 Television receivers 1.6 4.1 3.8 4.5 0.8
778 Electrical equipment nes 1.4 1 0.9 0.8 1.2
821 Furniture/stuff furnishg 1.4 1.7 1.5 1.6 1.0
716 Rotating electr plant 1.3 3.2 2.9 2.4 1.2
897 Jewellery 1.3 4.7 4.4 5 0.9
771 Elect power transm equip 1.2 2.7 2.5 2.6 1.0
851 Footwear 1.2 2.3 2.1 3.3 0.6
775 Domestic equipment 1.1 2.3 2.2 1.8 1.2
61 Sugar/mollasses/honey 1.0 8 7.5 9.9 0.8
841 Mens/boys wear,woven 1.0 2 1.9 2.5 0.8

TABLE 6
Common Comparative Advantage

Common Comparative Advantage with ...

Countries Indonesia Malaysia Philippines Singapore Thailand Total
Indonesia 13 10 6 12 41
Malaysia 13 8 7 9 37
Philippines 10 8 6 9 33
Singapore 6 7 6 7 26
Thailand 12 9 9 7 37

From the above table, countries with the same comparative advantage with the other 4 countries could
be identified. On top of the list is Indonesia, followed by Malaysia and Thailand. While Singapore
had the least common comparative advantage than the other 4 countries.

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 TABLE 7-1
Gained / Lost In Comparative Advantage In Producing Primary Products

SITC Product group Indonesia Malaysia Philippine Singapore Thailand

36 Crustaceans molluscs etc Gained Lost
37 Fish/shellfish, prep/pres Gained
42 Rice Gained
57 Fruit/nuts, fresh/dried Lost
61 Sugar/mollasses/honey Lost
231 Natural rubber/latex/etc Lost Gained
248 Wood simply worked Lost
251 Pulp and waste paper Gained
283 Copper Lost
ores/comcentrates
321 Coal non-agglomerated Gained
333 Petrol./Bitum. Oil, crude Lost Lost
334 Heavy petrol/bitum oils Lost Gained Lost Lost Gained
343 Natural gas Lost Lost
422 Fixed veg oils not soft Gained Lost Lost
% of pro. gained in c. 36 20 0 0 66.7
adv.

Singapore and the Philippines lost all comparative advantages in the export of primary products. Only
Thailand had gained significantly in the export of primary products.

TABLE 7-2
Gained/Lost In Comparative Advantage In Producing Manufactured Products
SITC Product group Indonesia Malaysia Philippine Singapore Thailand
634 Veneer/Plywood/etc Lost Lost
635 Wood manufactures nes Lost
641 Paper/paperboard Gained
651 Textile yarn Gained
653 Man-made woven fabrics Gained
716 Rotating electr plant Gained
728 Special indust machn nes Gained
741 Mens/boys wear, woven Gained
752 Computer equipment Gained Gained Gained Lost Lost
759 Office euquip parts/accs Gained Gained Lost Lost Gained
761 Television receivers Lost Lost
762 Radio broadcast receiver Gained Lost
763 Sound/TV recorders etc Lost Lost
764 Telecomms equipment Gained Lost Lost Lost Lost
nes
771 Elect power transm equip Gained
772 Electric circuit equip Gained Gained Gained Gained
773 Electrical distrib equip Lost
775 Domestic equipment Gained
776 Valves/transistors/etc Gained Lost Gained Gained Gained
778 Electrical equipment nes Gained Gained Gained Gained

399
 782 Goods/services vehicles Gained
784 Motor veh parts/access Lost
821 Furniture/stuff furnishg Gained Gained Lost Gained
841 Mens/boys wear, woven Gained Lost Lost
842 Women/girl clothing Gained Lost
wven
845 Articles of apparel nes Gained Lost Gained
851 Footwear Lost Lost
897 Jewellery Lost
898 Musical instrums/records Gained
% of pro. gained in c. 76.5 45.5 27.3 62.5 64.7
adv.

In the export of manufactured products, Indonesia had 76.5 percentage of manufactured exports that
gained comparative advantages. Similar ratio for Thailand was 64.7 percentage, and Singapore 62.5
percentage. Malaysia and the Philippines had less significant gained in comparative advantages in the
manufactured exports.

CONCLUSION

Been resources rich countries, the Asian five countries are able to export a variety of primary products
to world market. Most significant product is fixed vegetable oils. Seventy-eight percentage of world
export came from Indonesia, Malaysia and the Philippines. Except Indonesia, the latter two countries
had lost their comparative advantage. In order words, they had lost the market share due to increasing
labor cost. Thailand, compared with the other 4 countries, had gained market share in producing
primary products, particularly in natural rubber, rice, heavy petrol and fish/shellfish. For the
manufacturing products, due to the influx of FDI in information technology investments, all five
countries exported computer equipment, office equipment, telecommunication equipment,
valves/transistors. In 2000 Asian five countries exported about 28 percentage of valves/transistors, 25
percentage of office equipment, 20 percentage of computer equipment to the world. Except Malaysia,
the other four countries had gained market share in producing valves/transistors. Indonesia, Malaysia
and the Philippines had bigger market share in computer equipment. While Indonesia, Malaysia and
Thailand had greater market share in office equipment. Beside electrical and electronic products,
Singapore had also targeted at specific industries and gained market share in musical instrument and
special industries machinery.
1
Data from World Investment Report 2002. Annex table A. II.1.
2
ibid.
3
World Investment Report 2002, p. 144. Figure VI.1.
4
http://r0.unctad.org/wir/contents/wir02_dl.htm. (Country fact sheet)

REFERRENCES

World Investment Report 2002: Transnational Corporation and Export Competitiveness, UNCTAD.
International Trade Statistics 2002 by WTO available on line
http://www.wto.org/english/res_e/statis_e/its2002_e/its02_appendix_e.htm
Table A4 (export)and A5(import)
International Trade Center
http://www.intracen.org/menus/products.htm

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