Chap1 m9-value chain of garment sector

2.  Concept of Comparative Advantage
 Measure of Revealed Comparative Advantage
 Assessment of Vietnam’s RCA
 Comparison of Vietnam’s RCA with other
ASEAN countries

3.  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

4.  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)

5.  Data: Revision 3 of the Standard International
Trade Classification (SITC). Statistical Program of
the WTO
1 Primary products
2 Manufactures
3 Other products
 Adopt Balassa Index RCA2

8. Vietnam Malaysia Philippines Singapore
Thailand Indonesi
a
Food X X X* X* X X
Raw
X X X X
materials
Fuels X X X
Mining
X X
products
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

13.  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.