Comparative advantage dynamism of Indonesian export products

Ni Putu Wiwin Setyari, Tri Widodo () and Muhammad Edhie Purnawan
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Muhammad Edhie Purnawan: Gadjah Mada University, Indonesia

Journal of Developing Areas, 2016, vol. 50, issue 5, 57-69

Abstract: Classical international trade theory predicts if a country relatively rich in labor compared to capital will tend to specialize in labor-intensive industries to be exchanged with capital-intensive products produced by developed countries in the international market. This comparative advantage then regarded as a static character. The developments of new theory do relaxation on assumption of international capital flows, which in turn allows the changes in the industrial structure of a country. Countries that have a comparative advantage in labor-intensive industries can move into a country structured capital-intensive industry if the composition of the products produced in that country are more capital intensive, thus attract more international capital flows. Therefore, the nature of the comparative advantages of a country should be more dynamic, rather than static. As a country that has large populations, Indonesia will tends to specialize in products that are labor intensive. Indonesian industrial classification shows if the compositions of Indonesia’s industries are labor-intensive. There are about fifteen industries with high comparative advantage and all of them are labor intensive industries. Meanwhile all capital intensive industries are included in low comparative advantage products. However, some of capital intensive products indicate tend to have high comparative advantage. It shows if Indonesian industry specialization is unstable. This paper analyzes closer on Indonesian export products to determine whether there is a change in Indonesian industrial structure. Trend of the median value, standard deviation and skewness coefficient comparative advantage of Indonesia’s export products use to see the RSCA distribution. Some common patterns that appear from the chart are the difference between the comparative advantage of Indonesia’s industrial products tend to decline over time. If we observed specifically each industry, both labor-intensive and capital-intensive showed an increase in comparative advantage. Different condition is the trend of the two standard deviations. Standard deviation capital-intensive industrial products showed an upward trend. This indicates if the increased specialization in several industry groups, while other industry groups are relatively fixed or may even decrease. Estimation using Spearman’s rank correlation shows if there has been a shift in the pattern of comparative advantage of Indonesia’s export products. An industry which at the beginning has comparative advantage can be shifted into industries that do not have the advantage, and vice versa. When Indonesian industry divided into capital-intensive industry and labor intensive, it can be seen if the shift in capital-intensive industry is more dynamics than the labor-intensive one.

Keywords: Empirical Studies of Trade; Industrial Organization; Manufacturing Industry (search for similar items in EconPapers)
JEL-codes: F14 L16 L60 (search for similar items in EconPapers)
Date: 2016
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