Comparative Advantage

COMPARATIVE ADVANTAGE: THEORY, EMPIRICAL MEASURES AND CASE STUDIES
Tri WIDODO* Abstract: This paper consists of three main parts i.e. theory, analytical tool and case studies of comparative advantage. Firstly, we review the theory and various empirical measures of comparative advantage. We would argue that for the catching-up economies, like ASEAN countries, the meaning of “leading exported products” could be examined from the two points of view i.e. international competitiveness and country’s trade balance. Secondly, we combine two indexes of comparative advantage, i.e. Revealed Symmetric Comparative Advantage (RSCA) index by Dalum et al. (1998) and Laursen (1998), and Trade Balance Index (TBI) by Lafay (1992), which represent well the two points of view, to propose an analytical tool, namely “products mapping”. Thirdly, this analytical tool is applied to analyze exported products (defined as 3-digit SITC Revision 2) of the ASEAN countries. This paper concludes that in the cases of ASEAN countries, the higher the comparative advantage for a specific product, the higher the possibility of the country as a net-exporter becomes. This finding strongly supports the theory of comparative advantage. Keywords: Revealed Comparative Advantage, Trade Balance, Products Mapping. JEL Codes: E00, E01, E13

1. INTRODUCTION
In the theories of international trade, comparative advantage is an important concept for explaining pattern of trade. David Ricardo (1817) firstly introduces the concept of comparative advantage with very strict assumptions. It is then well recognized as the Ricardian model. In the modern theories of international trade,
*

Tri Widodo, Affiliation: Faculty of Economics and Business, Gadjah Mada University. E-mail address: kociwid@yahoo.com

58

Tri WIDODO

such strict assumptions are replaced with the more realistic ones. Heckscher (1919) and Ohlin (1933) examine the effect of different factor endowments on international trade. Their model, which... [continues]

Read full essay