Strong Comparative Advantage Research Articles

An investigation on competitiveness in services: Turkey versus European Union

Purpose– The aim of this study is to investigate the competitiveness of the selected services in Turkey in comparison with the EU and the selected EU countries based on three comparative advantage indices.Design/methodology/approach– Three different revealed comparative advantage indices were utilised in a combined way. Import and export figures of six service sectors were taken into account for the period of 2000-2010. The selected services are: transportation, travel, construction, financial services and insurance, communications and IT services, and personal, cultural and recreational services. Consistency of the results was achieved through correlation analyses.Findings– Strong comparative advantages exist for Turkey in construction, tourism and transportation sectors. Although Turkish financial and insurance and communication and computer-information sectors appear to be weak compared to EU, there is a substantial potential for improvement.Originality/value– A detailed comparative investigation of services' competitiveness for Turkey was provided. The policy decision makers in Turkey and in Europe's selected countries can utilise the findings and recommendations of the study for projection of the investigated sectors.

Who will win the green race? In search of environmental competitiveness and innovation

As the world considers greener forms of economic growth, countries and sectors are beginning to position themselves for the emerging green economy. This paper combines patent data with international trade and output data in order to investigate who the winners of this “green race” might be. The analysis covers 110 manufacturing sectors in eight countries (China, Germany, France, Italy, Japan, South Korea, UK and the US) using date for the period 2005–2007. We identify three success factors for green competitiveness at the sector level: the speed at which sectors convert to green products and processes (measured by green innovation), their ability to gain and maintain market share (measured by existing comparative advantages) and a favourable starting point (measured by current output). We find that the green race is likely to alter the present competitiveness landscape. Many incumbent country-sectors with strong comparative advantages today lag behind in terms of green conversion, suggesting that they could lose their competitive edge. Japan, and to a lesser extent Germany, appear best placed to benefit from the green economy, while other European countries (Italy in particular) could fall behind. However, the green economy is much broader than the few flagship sectors on which the debate tends to focus, and each country has its niches of green competitiveness.

What Would Korea-US Free Trade Agreement Bring?

ABSTRACTThis paper uses a computable model of trade to forecast the effects of the US–Korea free trade agreement on the manufacturing sector. The model uses the Eaton–Kortum methodology to explain intra-industry trade instead of the usual Armington assumption. It is parameterized using 2005 data for 15 industries and 53 countries. The results show that implementing KORUS would increase the US manufacturing exports to Korea by 56.9% and Korean manufacturing exports to the US by 18.9%. It would also increase manufacturing employment by 26,500 jobs in Korea and 34,200 jobs in the US. In addition, KORUS would lead to significant changes in the patterns of trade and production. The US and Korea would increase their specialization in the industries where they have strong technological comparative advantages. Finally, KORUS would increase welfare in both countries, but only modestly: by 0.27% in Korea and 0.013% in the US.

Dairying in the Antipodes: recent past, near prospects

The majority of dairy farmers and processors in Australia and New Zealand are considered world class due to their ability to produce dairy products at a cost that is competitive on the world market without requirement for subsidy. International and domestic forces beyond the farm influence the international competitiveness of Antipodean dairy systems, as much or more than, the within-farm characteristics of the systems. Critical external forces include: world population growth, protein demand from increasingly wealthy developing countries, dairy supply from domestic and international producers, international dairy prices and exchange rate volatility. Within farm, the keys to persistent profitability, business survival, and growth will continue to be management ability and labour skill as well as the relationship between milksolids (milk fat + milk protein) produced per system and total production costs. Domestic forces will include competition for resources such as land, water, quality labour and capital, and public expectation that farms will meet the costs of community environmental and welfare objectives. Public and industry investment in research, development and extension in innovations that increase productivity is essential if dairying is to remain competitive. The operation of the comparative advantage principle determines which industries thrive, or decline, in an economy. New Zealand dairying has a strong comparative advantage over alternative pastoral industries which will continue. In Australia, the comparative advantage of dairy farming over alternative activities is less clear-cut. History shows that the best farmers and processors handle risks such as market and climate volatility and other challenges better than others, and their prospects are positive. However, world class performers in the future dairy industry will certainly not be all, or even the majority, of the current population of dairy farmers.

Who Will Win the Green Race? In Search of Environmental Competitiveness and Innovation

As the world considers greener forms of economic growth, countries and sectors are beginning to position themselves for the emerging green economy. This paper combines patent data with international trade and output data in order to investigate who the winners of this “green race” might be. The analysis covers 110 manufacturing sectors in eight countries (China, Germany, France, Italy, Japan, South Korea, UK and the US) over 2005-2007. We identify three success factors for green competitiveness at the sector level: the speed at which sectors convert to green products and processes (measured by green innovation), their ability to gain and maintain market share (measured by existing comparative advantages) and a favourable starting point (measured by current output). We find that the green race is likely to alter the present competitiveness landscape. Many incumbent country-sectors with strong comparative advantages today lag behind in terms of green conversion, suggesting that they could lose their competitive edge. Japan, and to a lesser extent Germany, appear best placed to benefit from the green economy, while other European countries (Italy in particular) could fall behind. However, the green economy is much broader than the few flagship sectors on which the debate tends to focus, and each country has its niches of green competitiveness

Competitiveness in Services: Turkey Versus European Union

Giving the fact that services as a trade instrument have become quite crucial and critical in the growth of economies in many nations, the research associated with measuring the competiveness in services are limited, especially for developing countries such as Turkey. The aim of this study is to investigate the competitiveness of the selected services in Turkey in comparison with the EU and the selected EU countries based on three comparative advantage indices. In this context, three different revealed comparative advantage indices were utilised in a combined way using import and export figures of six service sectors for the period of 2000-2010. The results indicate that strong comparative advantages exist for Turkey in construction, tourism and transportation sectors. Although Turkish financial and insurance and communication and computer-information sectors appear to be weak compared to EU, there is a substantial potential for improvement in these sectors.

Multilateral trade liberalization and public goods provision in a North-South trade model with nonhomothetic preferences

Under nonhomothetic preferences developing countries are less likely to gain from multilateral trade liberalization than developed countries. This paper shows that this relative disadvantage for developing countries changes when the effects on public good provision are taken into account. The impact it has depends on the strength of their comparative advantage in export markets. We show that a strong (weak) comparative advantage in export markets mitigates (reinforces) the relative disadvantage of multilateral trade liberalization for developing countries. Moreover, in the presence of public goods provision, the relative disadvantage for developing countries with a strong comparative advantage is further mitigated when also income differences within countries are taken into account.

Development of agricultural trade and competitiveness of the commodity structures of individual countries of the Visegrad Group

The paper analyzes the development of the value, commodity and territorial structure and competitiveness of agricultural trade of the countries of the Visegrad Group in 1993–2008. Over the years, there has been a sharp increase not only to the volume, but also to the value of the traded agricultural products. The territorial structure of both exports and imports has narrowed to a decisive extent, primarily to the trade with the countries of the EU27. The commodity structure of agricultural trade has adapted very strongly both to the world and especially to the European market and it has furthermore reacted to the changes in the structure of the individual national markets. In the course of the years, the commodity structure has profiled so that there has been a limitation of aggregation with a strong comparative advantage on the market of the EU countries in relation to the aggregations that did not held this advantage. The analysis that has been performed indicates that the process of the accession to the EU has been reflected positively in the results of agricultural trade especially in the case of Poland. In the case of the Czech Republic and Slovakia, the entry into the EU likewise has not led to a worsening of the results in the area of agricultural trade. Only in the case of Hungary, one does find serious structural problems after the entry into the EU in the case of agricultural trade. It can be assumed that these problems can be attributed for the most part to the Hungary’s current economic problems.    

Comparative advantage and unemployment

Worker heterogeneity in productivity and labor supply is introduced into a matching model. Workers who earn high wages and work high-hours are identified as those with strong market comparative advantage—high rents from being employed. The model is calibrated to match separation, job finding, and employment in the SIPP data. The model predicts a big drop in employment for workers with weak comparative advantage during recessions. But the data show that workers with strong comparative advantage also display sizable employment fluctuations, implying that aggregate employment fluctuations are not explained by the responses of workers with small rents to employment.

Evaluating tourism competitiveness of small island developing states: a revealed comparative advantage approach

This paper analyses the competitiveness of eighteen small island developing states (SIDS) over the period 2000–2007 employing the technique of revealed comparative advantage. We find that most SIDS had at the very least a weak comparative advantage on average. Of particular note, the results indicate that competitiveness in most SIDS increased over the sample period. However, in spite of their improvements, none of the countries at any point in time displayed a strong comparative advantage. This would then call for a need for policy makers in SIDS to further upgrade their tourism products in order to improve competitiveness and sustain tourism.

Higher education exports in South Africa: A case study of Stellenbosch University

International trade in higher education services is one of the fastest growing tradable service sectors globally. Apart from the positive externalities international students create through knowledge mobility and spill-over, campus diversity, and local community development participation, spending by international students in the host city and immediate surroundings add significantly to local economic growth. The aim of this article is to show, firstly, the relative strong growth of South Africa’s higher education exports vis-à-vis other countries. We also find that South Africa has a strong comparative advantage in exporting higher education services. Secondly, we use a pilot questionnaire conducted in 2009 at Stellenbosch University to estimate the economic impact of these students on the local economy. We find that international students contribute between R159 million and R172 million per semester to the local economy, in addition to the positive – but largely unquantifiable – externalities they create.

Dynamic Patterns in Vietnam’s Comparative Advantage

This paper investigates the dynamic patterns of Vietnam’s comparative advantage in the context of ASEAN. Using the Galtonian regression method and the Markov transition probability matrices for data from 1997 to 2008, we find the following: Firstly, commodity groups with a weak comparative advantage improved their competitiveness, whereas those groups with a strong comparative advantage saw it decline, indicating a convergence of their comparative advantages. Secondly, in terms of intra-distribution dynamics, industries with no initial comparative advantage (Class a) and those with a strong initial comparative advantage (Class d) showed a high degree of persistence, suggesting a low degree of mobility in the trade patterns for Classes a and d. Thirdly, mineral resource-intensive products showed a high degree of export specialization, whereas other product categories showed a high degree of export diversification. Fourthly, all commodity groups showed a downward trend in the degree of specialization. Finally, Vietnam’s exports were dominated by unskilled labor-intensive products and agricultural resource-intensive products, reflecting the validity of Heckscher-Ohlin model. As a result of the country’s trade liberalization, the patterns of Vietnam’s comparative advantage have come to reflect its factor endowment. These results suggest that Vietnam could better diversify its export structures and shift to exports based on human capital and technology by further liberalizing its trade policies, fostering human capital formation, and facilitating the transfer of technology.

Travel service exports as comparative advantage in South Africa

World service exports have grown at a rapid rate over the past few decades. While some countries have benefited from the surge in service exports, others have been left behind. This paper provides a snapshot of South Africa’s comparative performance in service exports, using a new measure of revealed comparative advantage, the normalised revealed comparative advantage (NRCA). Countries are ranked according to their performance in 10 service export sectors. South Africa is found to reveal a strong comparative advantage in travel service exports (tourism). A discussion of the travel services sector follows, with historical, theoretical and empirical evidence to support the NRCA findings.

Dynamic Patterns in Vietnam’s Comparative Advantage

This paper investigates the dynamic patterns in Vietnam’s comparative advantage in the context of ASEAN. Using the Galtonian regression method and the Markov transition probability matrices for data from 1997 to 2008, we find the following: Firstly, commodity groups with a weak comparative advantage improved their competitiveness, whereas those groups with a strong comparative advantage saw it decline, indicating a convergence of their comparative advantages. Secondly, in terms of intra-distribution dynamics, industries with no initial comparative advantage (Class a) and those with a strong initial comparative advantage (Class d) showed a high degree of persistence, suggesting a low degree of mobility in the trade patterns for Classes a and d. Thirdly, mineral resource-intensive products showed a high degree of export specialization, whereas other product categories showed a high degree of export diversification. Fourthly, all commodity groups showed a downward trend in the degree of specialization. Finally, Vietnam’s exports were dominated by unskilled labor-intensive products and agricultural resource-intensive products, reflecting the Heckscher-Ohlin model. As a result of the country’s trade liberalization, the patterns of Vietnam’s comparative advantage have come to reflect its factor endowment. These results suggest that Vietnam could better diversify its export structures and shift to exports based on human capital and technology by further liberalizing its trade policies, fostering human capital formation, and facilitating the transfer of technology.

Geography and Trade in Central Asia

This paper documents the steady decline in Central Asia’s intra-regional trade since the mid-1990s, defying the 3-fold increase in overall trade from 1996 to 2005. Estimations of potential trade using gravity model confirm that the Central Asian countries, relative to their level of income and other individual characteristics, tend to overtrade with the rest of the world, but significantly undertrade within the region. We explain the regional trade puzzle by employing Helpman’s test, which tests the determinants of intra-industry trade based on product differentiation and increasing returns to scale. Helpman’s test indicates that Central Asia as a whole has little intra-industry trade. Overall trade is found to be mostly of inter-industry type, driven by natural resource endowment of these countries. We conclude that Central Asia’s trade patterns, particularly its trade puzzle, seem to be a result of complex factors such as region’s strong comparative advantage in natural resource-based exports, lack of regional integration, and trade-conducive policies across the region.

Higher education exports in South Africa: A case study of Stellenbosch University

International trade in higher education services is one of the fastest growing tradable service sectors globally. Apart from the positive externalities international students create through knowledge mobility and spill-over, campus diversity, and local community development participation, spending by international students in the host city and immediate surroundings add significantly to local economic growth. The aim of this article is to show, firstly, the relative strong growth of South Africa’s higher education exports vis-a-vis other countries. We also find that South Africa has a strong comparative advantage in exporting higher education services. Secondly, we use a pilot questionnaire conducted in 2009 at Stellenbosch University to estimate the economic impact of these students on the local economy. We find that international students contribute between R159 million and R172 million per semester to the local economy, in addition to the positive – but largely unquantifiable – externalities they create.

Migration and the retail banking industry: an examination of immigrants’ bank nationality choice in Germany

We study the choice of bank nationality by foreign-born retail banking customers in the context of bank globalization. We argue theoretically that banks enter foreign markets to follow their non-corporate customers and thereby are able to exploit competitive advantages over domestic banks. Using detailed survey data on more than 1000 Turkish immigrants in Germany, we find that product differentiation explains the choice of a home nation bank and that ethnic origin in itself provides the strongest comparative advantage for foreign banks. We find evidence for a persistent ‘home-bias’ of customers with an immigration background even with increasing integration into the host country's culture. This result may be surprising given that a systematic difference in the choice of bank nationality should not be observable with more integrated immigrants. Our results contribute to the existing economic research on multinational bank expansion by providing insights into bank globalization as an accompaniment to labor market internationalization.

Economic Information on International Markets: French Strategies in the Italian Mirror (Nineteenth–Early Twentieth Centuries)

During 1870–1914, business actors were concerned about the increasing uncertainty and occasional cheating in commercial relationships. In such situations, economic actors seek to improve the information they have, so as to benefit from strong comparative advantages over their competitors. This essay analyzes the acquisition and circulation of information and the actors and rules involved between 1870 and 1914, through a comparative approach (France and Italy). It considers individual trading firms, professional associations, information intermediating agencies, and state offices. We argue that these agencies (and therefore markets and institutions) acted much less as rivals than as complements in this era. Indeed, product information is different from information on the reputation of economic actors, the latter generating further distinctions between reputation for payment, respect of deadlines, and fidelity to the terms and objects of the contract. In turn, such kinds of situated micro-information differ from general statistics on market evolution and prices. We show that most economic actors were much more interested in the former (specifics) than in the latter kinds of information. To demonstrate this point, we compare the way traders, their associations, and private and state agencies intervened in the gathering, circulation, and interpretation of economic information in two countries, Italy and France, between 1870 and 1914. We argue that their opposite outcomes were not simply the result of different “mentalities” or attitudes to risk (as exogenously given), but rather can be traced to the different institutional settings and economic segmentation of the market for information in these two countries. In fact, unlike the Italian government, French ministries refused to provide their traders with micro-information on potential overseas correspondents and product characteristics. That is to say, “attitude to risk” and “animal spirits” are not exogenous and cannot be studied outside a given historical and institutional context.

Economic Information on International Markets: French Strategies in the Italian Mirror (Nineteenth–Early Twentieth Centuries)

During 1870–1914, business actors were concerned about the increasing uncertainty and occasional cheating in commercial relationships. In such situations, economic actors seek to improve the information they have, so as to benefit from strong comparative advantages over their competitors. This essay analyzes the acquisition and circulation of information and the actors and rules involved between 1870 and 1914, through a comparative approach (France and Italy). It considers individual trading firms, professional associations, information intermediating agencies, and state offices. We argue that these agencies (and therefore markets and institutions) acted much less as rivals than as complements in this era. Indeed, product information is different from information on the reputation of economic actors, the latter generating further distinctions between reputation for payment, respect of deadlines, and fidelity to the terms and objects of the contract. In turn, such kinds of situated micro-information differ from general statistics on market evolution and prices. We show that most economic actors were much more interested in the former (specifics) than in the latter kinds of information. To demonstrate this point, we compare the way traders, their associations, and private and state agencies intervened in the gathering, circulation, and interpretation of economic information in two countries, Italy and France, between 1870 and 1914. We argue that their opposite outcomes were not simply the result of different “mentalities” or attitudes to risk (as exogenously given), but rather can be traced to the different institutional settings and economic segmentation of the market for information in these two countries. In fact, unlike the Italian government, French ministries refused to provide their traders with micro-information on potential overseas correspondents and product characteristics. That is to say, “attitude to risk” and “animal spirits” are not exogenous and cannot be studied outside a given historical and institutional context.

The competitiveness and comparative advantage of the Slovak and the EU agri-food trade with Russia and Ukraine

The paper investigates comparative advantages and competitiveness of Slovak and the EU 27 agri-food trade in markets of two countries: Russia and Ukraine. Our aim is to see the dynamics of the agri-food trade for the analyzed countries especially in the post-accession period. Applying a trade dataset from the EUROSTAT and based on the approach applied by Bojnec and Fertő (2006), we describe the pattern of agri-food trade in Slovakia and the EU using the Balassa index. The extent of trade specialization exhibits a declining trend in the country. It has lost comparative advantage for a number of product groups over time. The indices of specialization have tended to converge. For the particular product groups, the indices display a greater variation. They are stable for the product groups with comparative disadvantage, but the product groups with strong comparative advantage show a significant variation. There are also shown different tendencies for different markets i.e. the trade patterns between the Slovak Republic and the EU 27 with Russia and Ukraine.