Cambodia's comparative advantage patterns and trade structure from 1985 to 2010.
Cambodia has been making efforts to move from subsistence agriculture to industrialization and, more generally, to further integrate itself into the regional and global economy. Trade development entered a new era when the country joined the Association of Southeast Asian Nations (ASEAN) in 1999 and became a World Trade Organization (WTO) member in 2004. It is expected that these developments, in conjunction with the government's outward-looking policies, will bring about changes to the country's comparative advantages.
Trade integration prompted Cambodia to shift from dealing with some former socialist countries in Eastern Europe in the 1980s to trading with regional partners, the European Union (EU) and the United States. Since the 1990s, Cambodia's main export destinations shifted from Eastern European countries to North America, the EU and neighbouring partners such as Vietnam. This shift is, in part, the result of the emergence and rapid development of Cambodia's garment industry over the last two decades. The national economy relies heavily on garment and footwear exports prompting some concern over the risks associated with excessive concentration. Many studies have consequently pointed to a need for export diversification.
Yet, the literature on the comparative advantage of least developed and developing countries is limited (Le 2010; Vixathep 2011). A notable study on Cambodia is one by the Japan International Cooperation Agency (JICA). It estimates export shares and indices of Revealed Comparative Advantage (RCA) for selected products from 2000 to 2020 including: garments; footwear; frozen fish fillets; crustaceans; tapioca and derived products; palm oil; and automotive electrical equipment. The JICA study reveals that despite maintaining a lead, the garment industry will lose its comparative advantage slightly and its share of exports will dip towards 2010 and then increase again till 2020. In addition, footwear, frozen fish fillets and select processed agricultural products have the potential of becoming major export commodities (JICA 2007). However, the JICA analysis largely focuses on specific commodity groups and does not provide an economy-wide comparison of commodities nor does it provide an RCA index/ranking.
With a view towards widening the scope of existing research, this article evaluates the patterns of comparative advantage and analyses the trade structure of Cambodia alongside trade integration. It takes into account all exported commodities and provides an economy-wide investigation of the country's trade structure and revealed comparative advantage from 1985 to 2010.
II. Economic Development and Trade Integration
II.1 Overview of the Economy
The Royal Government of Cambodia (RGC) has thus far implemented three five-year Socio-Economic Development Plans (SEDP [1996-2000]; SEDP [2001-05]; and the National Strategic Development Plan [2006-10]) alongside the National Poverty Reduction Strategy and Cambodia's Millennium Development Goals (CMDGs). Major development goals include, but are not limited to, rapid poverty reduction through achieving CMDGs and integrating Cambodia into the regional and world economy (RGC 2005). In 2004, the RGC adopted the "Rectangular Strategy" which comprises "good governance" at its core along with four major components: "peace, political and social order"; "[the] integration of Cambodia into the region and the world"; "partnership in development"; and "[a] favourable macroeconomic and financial environment". Economic development in Cambodia is currently characterized by foreign direct investment (FDI) trends, export competition with neighbouring economies, and oil development (JICA 2007).
Notwithstanding some fluctuation, the economy has been growing steadily since the mid-1990s at an average annual growth rate of 6.9 per cent (1991 to 1995). This rose to 9.4 per cent from 2001 to 2005 but decreased to 6.7 per cent from 2006 to 2010. With respect to sectoral development, the country is gradually moving from an agriculture-based to an industry- and services-based economy. The agricultural sector's share of GDP decreased from 56 per cent in 1990 to just 37 per cent in 2011. Over the same period, the industry sector grew from 11 per cent to 23 per cent and the services sector grew from 33 per cent to 40 per cent. Other macroeconomic indicators, such as GDP and GDP per capita, trade, savings and investments also suggest that Cambodia has seen stable socioeconomic development over the last twenty years (Table 1).
II.2 Industrial Development
After the devastation that occurred during the Khmer Rouge regime, manufacturing resumed production in the early 1980s with assistance from Vietnam and the former Soviet Union. Industrial production was mainly for domestic consumption and trade with the Soviet bloc. However, the Cambodian government opened up the economy to the rest of the world in the late 1980s starting with neighbouring Thailand (CDRI 2011).
Cambodia's industrial structure was still dominated by the primary sector at the beginning of the decade. For example, subsistence agriculture and fishery accounted for 40 per cent of GDP and employed about 80 per cent of the labour force in 2001 (Yamamura 2003). The industrial sector currently consists largely of labour-intensive and light industries. During 1995 to 2010, the industrial sector grew at an average rate of 12.7 per cent per annum while the agricultural and services sectors grew at an average annual rate of 4.4 per cent and 8.4 per cent respectively (ADB Key Indicators 2011). With respect to industrial policy, the government has largely focused its efforts on promoting and supporting the garment and tourism industry in various aspects: legislation, distribution, export negotiations and human resource development. In addition, the RGC promotes the development of natural resources, primary industries (agriculture, forestry, fisheries, among others) and processing industries for export and foreign currency earnings (JICA 2007).
II.3 Trade Liberalization
Cambodia commenced market liberalization in the early 1980s. The government relaxed state monopoly over international trade in 1987 and promulgated foreign domestic investment laws in 1989, thus allowing for the participation of private enterprises in foreign trade. Trade was further liberalized in the 1990s, entry barriers on individuals and firms were mostly eliminated and quantitative restrictions and import licenses were removed (CDRI 2011). Cambodia took a major step towards trade liberalization by joining ASEAN and participating in the ASEAN Free Trade Area (AFTA). The AFTA compels participating countries to enforce the Common Effective Preferential Tariff (CEPT) scheme, designed to reduce tariffs on manufactured and processed agricultural products to 0-5 per cent by 2010. In 2007, the Ministry of Commerce and the United Nations Development Programme in Cambodia launched a Diagnostic Trade Integration Strategy to support government efforts in strengthening and diversifying the export basket, removing common and specific bottlenecks, mainstreaming linkages between trade sector development and human development/poverty reduction and facilitating the formulation of trade sector development priorities (MOC and UNDP Cambodia 2007). Since joining ASEAN and the WTO, trade in Cambodia has gradually been liberalized and tariffs streamlined. To date, twenty-eight countries have granted Cambodia either Most Favoured Nation (MFN) or Generalized System of Preferences (GSP) status. Further, it has signed Bilateral Trade Agreements (BTAs) with nine countries and the EU.
III. Analytical Framework and Data
III.1 Measuring Revealed Comparative Advantage and Trade Patterns
Apart from factor endowment, a country's comparative advantage is related to autarkic prices which are not observable in the real world. Using post-trade prices, scholars have long tried to infer RCA from nations' export performances vis-a-vis international trade. RCA refers to the relative export performance of a country in a particular commodity trade. Under the assumption that trade patterns reflect relative costs and differences in non-price factors (quality, goodwill, services), the commodity pattern of trade should "reveal" the comparative advantage of the trading countries. 1 adopt Balassa's RCA index in this article; computed as follows:
[RCA.sub.i,j] = ([X.sub.i,j] / [X.sub.i,tot]) / ([X.sub.w,j] / [X.sub.w,tot]) (1)
where, [RCA.sub.i,j] denotes the revealed comparative advantage index of country i in commodity group j; [X.sub.i,j] denotes country i's exports of commodity group j; [X.sub.w,j] is the world's exports of commodity group j; [X.sub.i.tot] is country i's total exports; and [X.sub.w,tot] is total exports of the world.
This index takes a non-negative value. However, for ease of interpretation, this article reports the RCA index in a common logarithm form that can take on a negative, positive or zero value (Lee 1995; Vollrath 1991). An index greater than zero signals "high RCA" and an index less than zero signals "low RCA". In other words, a RCA index of zero means that Cambodia's export position in a given commodity is as large as its share of total exports. A value of--1.0 means that Cambodia's export position in a given commodity is 1/10th as large as its share of total exports.
Balassa's RCA index has been widely applied, evaluated and discussed in trade literature. Some of its weaknesses include distortions by non-tariff barriers, a bias towards countries and commodities with a small share in world markets, the lack of ordinal or cardinal property in the magnitude, and asymmetric property. Subsequently, the RCA index was modified and used to construct further indices --weighted, symmetric and normalized--to overcome these shortcomings (Yu, Cai and Leung 2009). However, each of these indices comes with specific advantages and disadvantages of their own. In the meantime, Balassa's RCA index continues to find the most widespread application in the empirical trade literature (Sinanan and Hosein 2012).
Relying solely on the absolute terms of the RCA index can lead to a misinterpretation of a country's comparative advantage because any one commodity group can hardly increase its export share if it already makes up a large portion of the nation's exports. Moreover, as the range of a country's export commodities becomes more diversified, it becomes increasingly difficult for any one commodity group to increase its market share (Lee 1995). Therefore, both the values and the rankings of the RCA index are considered in this analysis since they illustrate the trends and changes in revealed comparative advantage.
Some indicators derived from the RCA index are also used to evaluate the process of export diversification, including the share of high RCA products in the export market and the standard deviation. The analysis also administers the Galtonian regression to obtain statistical inferences on export diversification. The econometric analysis applies various configurations of the Galtonian regressions to ascertain the consistency of the final result (Hart 1995; Saninan and Hosein 2012).
[MATHEMATICAL EXPRESSION NOT REPRODUCIBLE IN ASCII] (2)
[MATHEMATICAL EXPRESSION NOT REPRODUCIBLE IN ASCII] (3)
where, [MATHEMATICAL EXPRESSION NOT REPRODUCIBLE IN ASCII] denotes the RCA index for commodity j at time [t.sub.k]; [MATHEMATICAL EXPRESSION NOT REPRODUCIBLE IN ASCII] is the mean value (and alternatively the median value); [MATHEMATICAL EXPRESSION NOT REPRODUCIBLE IN ASCII] denotes the deviations of the RCA index from the mean value (alternatively the median value); [[beta].sub.k] and [[gamma].sub.k] are the coefficients to be estimated; and [MATHEMATICAL EXPRESSION NOT REPRODUCIBLE IN ASCII] are [MATHEMATICAL EXPRESSION NOT REPRODUCIBLE IN ASCII] the error terms.
This study applies commodity trade data from the Comtrade and Trade Statistics Yearbook of the United Nations Statistical Division (UNSD). Even in such a comprehensive database, trade data reported by Cambodia is available from only 2000 onwards. I have therefore used data reported by its trade partners for the earlier years under examination (1985, 1990 and 1995). During these three years, Cambodia's exports are represented by the "cif-import data" of its trading partners and its imports are represented by the "fob-export data" of its trading partners.
The trade partners were selected according to how important they were to Cambodia's exports. I have included a total of forty-six countries/ economies (1) in the analysis. Commodity trade with these forty-six partners comprised about a third to half of the country's total merchandise exports from 1985 to 1995. This is probably because trade data on the former Soviet bloc and Vietnam are not available in the Comtrade database.
I have classified the commodities according to the 1-digit and 3-digit Standard International Trade Classification (SITC) levels. The 3-digit level represents industries. The second revision of the SITC was used for the years 1985 to 1995 and the third revision of the SITC was used for the years 2000 to 2010. These time periods were selected for examination because they cover important economic events namely, the rebuilding of peace and the normalization of relations with the international community (early 1990s) and the economic reforms that subsequently took place such as establishing trade relations with the United States in 1996, joining the ASEAN and the AFTA in 1999 and joining the WTO in 2004.
However, the following disclaimer should be kept in mind when interpreting the results: the aggregates of the national data of individual trading partners, with their different rifles and definitions for data collection and processing may impact the RCA index. However, trends in the index sufficiently allow for some inferences on the country's comparative advantages from 1985 to 1995.
IV. Results and Discussions
IV. 1 Structure of International Trade
(a) Composition of exports. Cambodia's commodity exports have grown steadily to 54 per cent of GDP (US$5.6 billion) over the last two decades (Tables 1 and 2). Up until the late 1990s, and in terms of percentage share, exports were largely concentrated in primary products such as food and live animals (SITC0); beverages and tobacco (SITCI); crude materials excluding fuels (SITC2); basic manufactures (SITC6); and manufactured goods (SITC8). However, exports have shifted to basic manufactures (SITC6) and manufactured goods (SITC8) since the mid-1990s due mainly to the emergence of the garment and footwear industries, although crude materials excluding fuel (SITC2) still maintain a limited presence. Recently, the share of "machinery and transport equipment" (SITC7) also increased drastically to nearly 5 per cent in 2010. (2)
With regard to export markets, destination countries have shifted from Singapore and the former socialist countries of Eastern Europe to the United States and EU member countries. For example, cereals were mostly exported to former East Germany in 1985 and rubber to Singapore and Czechoslovakia (Vixathep 2008). However, in 2010, the United States accounted for about 34 per cent of goods exports; Hong Kong 25 per cent; Singapore 8 per cent; Canada 5 per cent; Netherlands 4 per cent; and the United Kingdom 4 per cent (UNSD Comtrade).
(b) Composition of imports. Most of the country's imports are material inputs, equipment and fuels such as oil-seeds (SITC 122); petroleum products (SITC 33); textile yarn and fabrics (SITC 65); iron and steel (SITC 67); industrial machinery and telecommunications equipment (SITC 74, 76); electrical machines (SITC 77); and road vehicles (SITC 78). Unlike exports, where high shares can be found at the 3-digit SITC level, imports are much more widespread (except in the case of petroleum oils (SITC 334) [Vixathep 2008]).
In terms of suppliers, Cambodia mainly imports from ASEAN member countries and East Asian economies. Thailand and Hong Kong have been major suppliers over the last decade with China and Vietnam gradually increasing their share and occupying a considerable position in the Cambodian market. Once again, while Cambodia mainly imported from formerly socialist Eastern European countries (Poland, Czechoslovakia and Hungary) in the 1980s, it has moved on to import from Asian economies since the beginning of the 1990s (Vixathep 2008). In 2010, China accounted for 25 per cent of commodity imports followed by Thailand at 14 per cent, Hong Kong at 11 per cent and Vietnam at 10 per cent (UNSD Comtrade).
IV.2 Patterns of Cambodia's Comparative Advantage
The RCA index calculated at the 1-digit SITC level portrays a general picture of Cambodia's comparative advantage for the years 1985 to 2010 (Table 2). During the turbulent period of the 1980s, the country's comparative advantage was largely concentrated in the primary products mentioned above. However, the country's comparative advantage has gradually moved to manufactured goods (SITCS) over the last couple of decades (the shift from a negative to a positive RCA occurred in the mid-1990s).
The RCA index at the 3-digit SITC level presents more evident patterns of comparative advantages. Table 3 contains product groups with a positive RCA from 1985 to 2010. The index is missing for many of the products during 1985 to 1990. This is explained by Cambodia's economic isolation prior to the restoration of domestic peace and the normalization of international relations. Also, many of Cambodia's trading partners then did not report their trade data to the UNSD Comtrade database.
Up until the mid-1990s, some agricultural and fishery products and crude materials recorded a high RCA but they gradually lost their competitiveness. By 2010, most of these commodities recorded a negative RCA index or were no longer being exported. Specifically, these products are fried and smoked fish (SITC035); crustaceans (SITC036); unprocessed maize (S1TC044); rice (SITC042); oil-seeds and fruit extracts (SITC 222); synthetic and reclaimed rubber (SITC232); wood products (SITC245, 247, 248); and crude animal and vegetable materials (SITC291, 292). Only rice and simple wood products (SITC247) appear to have maintained their comparative advantage over the period under examination albeit with some fluctuations.
Synthetic and reclaimed rubber (SITC232) featured at the top of the RCA rankings until the early 1990s; its largest recorded shares were at 26 per cent in 1985 and 34 per cent in 1990. However, it lost its competitiveness and fell out of the top-ten list after 2000. On the other hand, natural rubber (SITC231) has maintained its position among the top-ten products with a share of less than 2 per cent. Three other products within this sector --crude vegetable materials (SITC292); oil-seeds (SITC222); and raw hides and fur skins (SITC211) --also dominated the top-ten list until 1990 and accounted for about 10 per cent of commodity exports. However, they have lost their comparative advantage and have since disappeared from the list altogether. Cambodia's RCA patterns are comparable to that of Vietnam, which shifted from having a high RCA in food and crude materials (agriculture, fish, rubber, vegetable materials and oil-seeds) in the late 1980s and early 1990s to light industrial commodities (textiles, garments and motorbike parts) in the 2000s (Vixathep 2013). These shifts are attributable to the tariff reforms and trade liberalization undertaken by both countries in the mid-1990s and early 2000s (Naron 2009, pp. 461-84). The wood industry has been in the top-ten rankings since the early 1990s. Since 2000, however, they have lost their significance in terms of export share. This is explained by an endowment in forest resources and a shift in policy to promote processed (wood) products. This pattern is very similar to that of Laos, which has a comparable path of development and economic transition policies (Vixathep 2011).
On the other hand, garment and footwear products have steadily gained competitiveness over the study period. In 1985, only three garment items recorded a positive RCA index (non-knitted women's outwear (SITC 843); non-knitted undergarments (SITC 844); knitted undergarments [SITC 845]) but by 2000 most of the garment and footwear products had gained a high RCA and they have retained their comparative advantage ever since. Owing to their crucial role in the Cambodian export market, these two industries are investigated in greater detail in Section IV.
Notwithstanding the significance of garments and footwear, some agro-processing and manufacturing commodities show a potential for export at the 3-digit SITC level. For example, fresh or dried fruits and nuts (STIC 057) and tobacco products (STIC 121, 122) have improved in their competitiveness values even though their RCA indexes have yet to turn positive and their shares are still under the one percent mark. Also, some basic manufactured goods (plywood (SITC 634); wood manufactures (SITC 635); made-up articles of textiles (ST1C 658) gained RCA in the early 2000s but could not maintain their competitiveness and eventually lost their comparative advantage.
In addition, two primary commodities--natural rubber (SITC 231) and gold (SITC 971) and a manufactured product (printed matter SITC 892) entered the export market in the 2000s and have maintained a positive RCA over the last decade. The latter has increased its export share drastically from about 19 per cent in 2005 to 32 per cent in 2010. If guided by the appropriate development and promotion strategies, these industries could become candidates for important exports in the foreseeable future.
IV.3 Diversification of Exports
With a view towards examining the changing patterns of Cambodia's comparative advantage, I apply two indicators to evaluate diversification in exports: (1) the ratio of products with a comparative advantage to the overall exported products and (2) the standard deviation of the RCA index. Table 4 reveals a trend of increasing export concentration over the last two decades. While the number of product groups with a high RCA varies between 14 and 19, the number of exported commodities ranges from 40 to 166. Consequently, the resulting ratio decreases over the study period from 45 per cent to less than 10 per cent. In addition, although the change in the number of high RCA products is less considerable, these product groups comprise 83 per cent to 97 per cent of the country's exports (except for in 1985). Secondly, if the range of a country's export commodities becomes more diversified, the standard deviation of the comparative advantage index is expected to decline. In Cambodia's case, the standard deviation of the RCA index increased from 0.87 to 1.50 (Table 4, row 5). These results suggest that Cambodia's exports have become more concentrated in some commodities over the last twenty years despite the increase in the number of items being exported.
The time period in the above econometric analysis is shortened to 1995 to 2010 owing to a lack of data from 1985 to 1990. The results from the Galtonian regressions largely confirm the findings above (Table 5). From 1995 to 2010, Cambodia saw greater export diversification (see the declining value of [[beta].sub.k], insignificance notwithstanding) resulting from the emergence and expansion of the textile and clothing industry. In the first half of the 2000s, the country experienced a boom and increasing export concentration in the garment sector up until the termination of the Multi Fibre Arrangement (MFA). In recent years, diversification has become more significant, most likely because investors reacted to the abolishment of the Agreement on Textiles and Clothing (ATC) as well as to the new business opportunities arising from Cambodia's outward-oriented investment policies in 2005 and its increased participation in regional and international trade agreements (AFFA, WTO membership and the ASEAN+3 FTAs). These FTAs have only just become effective; more time is required to undertake a quantitative investigation on the effects of such agreements. For example, international trade appears to have a significant influence on foreign domestic investment (FDI). On the other hand, ASEAN membership has shown no additional impact (Cuyvers et al. 2011).
IV.4 RCA Trends of Garment and Footwear Industries
The garment industry forms the backbone of the economy in terms of output and employment. The export value of apparel and footwear products increased drastically from US$0.25 million in 1985 to US$3.2 billion in 2010 (UNSD Comtrade). The garment industry is also a major non-agricultural sector providing employment opportunities for Cambodians and employing about a third of the manufacturing sector's labour force (250,000-330,000 workers). A large part of this workforce consists of less educated young women from rural areas who sustain approximately 20 per cent of the population with their remittances (USAID 2005).
The garment industry is the most dynamic industry and has steadily gained competitiveness in the last two decades. In 1985, Cambodia exported five garment product groups but only three product groups (knitted and non-knitted undergarments, and non-knitted women's outwear) recorded a positive RCA index with just a 3.2 per cent share; (3) they ranked between 5th and 34th of 40 product groups being exported. However, this industry has slowly gained competitiveness and benefited from FDI. By 1995, garment products comprised 20 per cent of exports and made up five of the top ten products and commodities. As industrialization moved towards manufacturing, this sector fully dominated the country's exports with four or five representative items in the top-ten list each year. For example, six garment items, except for "textile and clothing accessories" (SITC846), recorded a RCA index score of between 0.4 and 2.0 in 2000 and ranked between 1st and 13th of 152 product groups. In 2005, these six commodities achieved a positive RCA index and ranked between 1st and 11th of 165 product groups (Table 6).
Similarly the footwear industry, which still registered a negative RCA index up to the mid-1990s, has steadily gained competitiveness and significance over the last two decades. Footwear products recorded an RCA index of--1.53 and a rank of 57th (of 77 product groups) in 1990 but since 2000 the industry has turned into a high RCA sector and accounts for about 2 per cent of total commodity exports. As a result, it ranked 9th out of 166 exported commodities with a RCA index of 0.71.
One can also observe some interesting trends in the comparative advantage of garment products at the 3-digit level. While most of the garment products have maintained a high RCA and high rankings over the study period, non-knitted women's and girls' clothing (SITC 842) and non-textile clothing headgear (SITC 848) have lost their competitiveness while "textile and clothing accessories" (SITC 846) have regained their competitiveness after losing it during the first half of the 2000s. These results imply that within the apparel product range, Cambodia tends to specialize in relatively less sophisticated items with lower added value by taking advantage of low labour costs.
Consequently, it is fair to state that Cambodia's exports have marginally diversified over the period under study. The indicators suggest some sign of diversification since the mid-2000s, while a convergence of exports in some primary and basic manufactured goods has emerged over the last two decades. It is observed that at the 3-digit STIC, these are mainly primary and simple processed commodities and garment and footwear products.
The evolution of Cambodia's RCA appears to be closely linked with FDI, particularly the RCA of source countries. During 1994 to 2004, FDI inflows amounted to U$5.313 billion in fixed assets, mainly from ASEAN members, Korea, Taiwan, and China (Cuyvers et al. 2011). RCA trends in China, Korea, Indonesia, Malaysia, the Philippines, Singapore, and Thailand (Hara and Shuto, 2005) from 1985 to 2001 reveal that those investing heavily in Cambodia (i.e., Korea, Thailand and Malaysia) have lost their comparative advantage in cereals; vegetable fats and oil; cork and wood; crude rubber and garment products as they move to more capital-intensive commodities such as office machines; telecom and sound equipment; motorbikes; and automobiles, for example. Investors from these countries then eventually invested in Cambodia, which has partly resulted in upward RCA trends in the former commodity groups since the early 1990s. Future trends of the country's comparative advantage could be expected to diversify toward processing (light) industries producing dried fruit and tobacco products; plywood and wood products; textiles; printed matters and the like; and more capital-intensive products (motorbikes and telecom equipment). However, this would require the government's utmost efforts in implementing sound policies on education, investment, trade, economic integration, attracting more domestic and foreign investment, upgrading stagnated sectors and developing those with export potential.
V. Summary and Conclusions
This article examines the structure of external trade and the patterns of Cambodia's revealed comparative advantage from 1985 to 2010 by applying Balassa's RCA index. In the first half of the study period, exports mainly consisted of primary goods and some basic manufactured commodities such as: basic rubber products; oilseeds and fruit extracts; crude animal and vegetable materials; and some garment products (labour-intensive industry). A shift from resource-based exports to light and labour-intensive industrial commodities occurred in the mid-1990s. Since then, the country's exports have been dominated by a few crude materials and manufactured goods of labour-intensive industries (garments, footwear and printed matter). In addition, this article has highlighted some commodities from agro-processing and manufacturing industries that have potential for export (fresh and dried fruits and nuts, tobacco products and wood products).
These developments are likely a result of government efforts in trade integration, industrial development, and FDI enhancement which started in the late 1980s. The shift to garment and footwear exports in Cambodia could also be interpreted as an outcome of the development occurring in other developing economies in the region which have succeeded in their move to newly industrialized economies. Industries in these economies have become more capital-and technology-intensive with labour-intensive industries setting up shop in other economies with lower wage rates such as Cambodia.
Export concentration characterized the economy for most of the study period with signs of diversification emerging only in recent years. This suggests that regional and international integration programmes have yet to bring about the expected positive impact on the country's competitiveness. Furthermore, intra-industry specialization tends to occur within simple product groups while more sophisticated commodities have lost their competitiveness. Cambodia's comparative advantage continues to be based on relatively low-cost labour and low value-added commodities.
Cambodia needs to build a solid base by improving both physical and institutional infrastructure (including the energy sector), enhancing human resources and developing competitive industries with potential for exports.
Furthermore, as suggested in Le (2011) and Vixathep (2011), Cambodia's comparative advantages and international trade are influenced by both internal factors (factor endowment; trade policies; reform agenda; institutions of a market economy; FDI policies; integration; and geographical location) and external factors (global economic conditions; world demand for products; trade policies and trade procedures of other countries; and trade arrangements with partner countries). These factors, particularly in relation to resource sectors, could be quantitatively addressed in future research. By examining the RCA trends of Cambodia this article provides some direction for cultivating new industries to drive the economy forward.
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(1.) The 46 economies include: 14 Asian economies (Bangladesh; China; Hong Kong; India; Indonesia; Japan; Korea; Malaysia; Pakistan; Philippines; Singapore; Sri Lanka; Thailand; UAE), 25 countries from Europe (Austria; Belgium; Bulgaria; Czech Republic; Denmark; Finland; France; Germany; Greece; Hungary; Ireland; Italy; Luxembourg; Netherlands; Norway; Poland; Portugal; Romania; Russian Federation; Spain; Sweden; Switzerland; Turkey; Ukraine; United Kingdom), 5 countries from North and Latin America (United States; Canada; Mexico; Argentina; Brazil) and Australia and New Zealand.
(2.) The analysis in this section is based on a more comprehensive study in Vixathep (2008). To address the asymmetric property and some other shortcomings, the original work applies two indices of comparative advantage (Balassa's RCA Index and the Net Export Index) in terms of value and rankings, and the Spearman rank correlation coefficient for evaluating the patterns and evolution of Cambodia's comparative advantage. The two RCA indices yielded very comparable results. This paper is a concise text with a time extension to 2010.
(3.) These figures are based on the 2nd revision of the SITC.
Souksavanh Vixathep is Assistant Professor at the Graduate School of International Cooperation Studies, Kobe University, Japan.
TABLE 1 Selected Socio-Economic Indicators Description 1990 1995 2000 Total population (million) 8.6 10.5 12.5 Employed labour (million) 3.9 4.9 5.3 GDP (mil US$, 2000 prices) 2,210 (e) 2,570 3,670 Share of agriculture in GDP (%) 55.6 49.6 37.9 Share of industry in GDP (%) 11.2 14.8 23.0 Share of services in GDP (%) 33.2 35.5 39.1 GDP per capita (US$, 2000 prices) 206 (e) 230 294 Average DP growth (annual %) 1.2 6.9 (a) 7.4 (b) Exports/GDP (%) 6.1 31.2 49.8 Imports/GDP (%) 12.8 46.6 61.8 Average export growth (annual %) 8.3 70.7 (a) 19.1 (b) Average import growth (annual %) -7.1 50.7 (a) 13.1 (b) Gross saving/GDP (%) 5.6 5.4 13.2 Gross investment/GDP (%) 8.2 13.9 18.3 Inflation rate (%, 141.8 76.6 (a) 6.6 (b) annual CPI change) Human Development Index n.a. 0.407 0.438 Description 2005 2010 2011 Total population (million) 13.3 14.3 14.5 Employed labour (million) 7.6 7.1 7.2 GDP (mil US$, 2000 prices) 5,711 7,889 8,447 Share of agriculture in GDP (%) 32.4 36.0 36.7 Share of industry in GDP (%) 26.4 23.3 23.5 Share of services in GDP (%) 41.2 40.7 39.8 GDP per capita (US$, 2000 prices) 428 558 590 Average DP growth (annual %) 9.4 (c) 6.7 (d) 7.1 Exports/GDP (%) 64.2 54.1 54.1 Imports/GDP (%) 72.9 59.5 59.5 Average export growth (annual %) 17.1 (c) 7.6 (d) 35.8 Average import growth (annual %) 15.0 (c) 7.8 (d) 25.9 Gross saving/GDP (%) 14.4 12.9 10.6 Gross investment/GDP (%) 17.6 16.2 16.0 Inflation rate (%, 2.9 (c) 6.7 (d) 6.3 annual CPI change) Human Development Index 0.491 0.518 0.523 NOTES: 1. The superscript denotes: (a) average of 1991-95; (b) average of 1996-2000; (c) average of 2001-05; (d) average of 2006-10; and (e) value of 1993. SOURCES: Author compiled data are from: Key Indicators (various issues); Asian Development Bank; World Development Indicators (various issues) World Bank; Human Development Report (various issues); UNDP Cambodia. TABLE 2 RCA Index (logarithm) and Percentage Share in Exports (one-digit SITC) SITC 1985 1990 Food, live animals 0 0.10(9.8) -0.22(4.6) Beverages, tobacco 1 0.10(1.2) -- Crude materials excluding fuels 2 0.99(4.90) 1.38(89.7) Mineral fuels, lubricants 3 -- -- Animal, vegetable oils, fats 4 -- -- Chemicals incl. related products 5 -0.81(1.1) -1.51(0.3) Basic manufactured goods 6 -0.11(10.7) -1.27(0.9) Machinery, transport equipment 7 -1.11(2.2) -1.96(0.4) Misc manufactured goods 8 -0.15(5.5) -0.60(2.9) Unclassified goods 9 0.21(3.2) -0.38(1.2) Export value (US$ million) 6.6 41.5 1995 2000 Food, live animals -0.34(3.2) -0.86(0.7) Beverages, tobacco -1.06(0.1) -0.65(0.2) Crude materials excluding fuels 1.34(72.8) -0.02(2.9) Mineral fuels, lubricants -3.21(0.0) -4.01(0.0) Animal, vegetable oils, fats -0.22(0.3) -- Chemicals incl. related products -1.41(0.3) -2.81(0.0) Basic manufactured goods -0.97(1.8) -0.64(3.1) Machinery, transport equipment -1.82(0.6) -1.77(0.7) Misc manufactured goods 0.25(20.2) 0.87(91.8) Unclassified goods -0.69(0.6) -0.79(0.5) Export value (US$ million) 311.7 1,389.5 2005 2010 Food, live animals -1.02(0.5) -0.81(0.9) Beverages, tobacco -0.46(0.3) -0.47(0.3) Crude materials excluding fuels -0.3(1.7) -0.25(2.5) Mineral fuels, lubricants -7.21(0.0) -5.14(0.0) Animal, vegetable oils, fats -1.19(0.0) -0.52(0.2) Chemicals incl. related products -2.16(0.1) -1.64(0.3) Basic manufactured goods -1.04(1.3) -1.27(0.7) Machinery, transport equipment -1.96(0.4) -0.84(4.8) Misc manufactured goods 0.93(95.2) 0.93(90.3) Unclassified goods -0.87(0.5) -1.92(0.1) Export value (US$ million) 3,018.6 5,590.1 NOTES: (1.) "--" denotes data not available or no export of the respective product group. (2.) Percentage share is in parentheses. SOURCE: Author' calculations (data are from Comtrade online database). TABLE 3 Cambodia's RCA Product Groups (3-digit SITC) RCA Share SITC Commodity 1985 Export 2.11 25.9 232 Synthetic and reclaimed rubber 1.30 9.0 672 Primary forms of iron/steel 1.25 5.5 292 Crude vegetable materials 1.11 5.7 222 Oil-seeds, oleaginous fruits extract 0.83 1.2 844 Undergarment, not knitted 0.65 1.0 846 Undergarment, knitted 0.54 0.9 591 Insecticides, rodenticides, etc. 0.47 0.2 291 Crude animal materials 0.45 1.5 775 Household-type equipment 0.37 3.2 931 Special transactions and commodities 0.35 0.4 896 Works of art, antiques 0.34 0.5 98 Edible products and preparations 0.17 0.3 659 Floor coverings, etc. 0.14 0.9 843 Women's outwear, not knitted 0.11 0.6 112 Alcoholic beverages 0.08 0.5 894 Baby carriages, toys, games, etc. 0.02 0.6 81 Animal feeding stuff 0.01 0.8 71 Coffee and coffee substitutes Sum 58.9 (1% share = US$4.63 million) 1990 Export 2.43 33.7 232 Synthetic and reclaimed rubber 2.19 0.7 264 Jute and other textile bast fibres 1.90 13.3 282 Ferrous waste and scrap 1.70 13.7 247 Wood in rough or squared 1.69 0.3 245 Fuel wood and wood charcoal 1.36 4.4 288 Non-ferrous metal waste 1.32 6.1 222 Oil-seeds, oleaginous fruits extract 1.17 2.6 211 Raw hides and skins (excl. furskins) 2000 Export 2.02 17.8 843 Men's, boys' clothing, knitted 1.79 17.2 844 Women's, girls' clothing, knitted 1.66 19.6 892 Printed matter 1.42 26.0 845 Articles of textile apparel 1.26 1.8 232 Synthetic and reclaimed rubber 0.95 0.5 231 Natural rubber and gums (unprocessed) 0.87 2.0 634 Veneers, plywood, etc. 0.79 4.3 842 Women's, girls' clothing, not knitted 0.76 3.8 841 Men's, boys' clothing, not knitted 0.54 0.1 269 Worn clothing and textile articles, rags 0.49 0.0 223 Oil-seeds and oleaginous fruits 0.45 2.1 851 Footwear 0.39 0.5 848 Non-textile clothing, headgear 0.10 0.4 971 Gold, non-monetary (excl. gold ores) 0.03 0.3 658 Made-up articles of textiles 0.03 0.4 248 Simply worked wood 0.02 0.3 655 Knitted or crocheted fabrics Sum 97.2 (1% share = US$13.89 million) 2005 Export 2.07 29.1 844 Women's, girls' clothing, knitted 2.04 16.0 843 Men's, boys' clothing, knitted 1.69 19.2 892 Printed matter 1.45 24.4 845 Articles of textile apparel 1.06 1.2 231 Natural rubber, gums (unprocessed) 0.98 1.2 896 Works of art, antiques 0.84 0.5 35 Fried, salted, smoked fish 0.78 3.6 248 Simply worked wood 0.64 1.2 44 Unmilled maize (excl. sweet corn) 0.53 1.2 292 Crude vegetable materials 0.48 0.7 844 Women's girls' clothing, knitted 0.25 0.8 34 Fresh, chilled or frozen fish 0.22 0.1 267 Fibres, not man-made 0.04 0.2 665 Glassware Sum 82.9 (1% share = US$6.76 million) 1995 Export 2.24 36.2 247 Wood in rough or squared 1.59 20.9 248 Simply worked wood 1.53 0.2 245 Fuel wood and wood charcoal 0.95 6.1 845 Articles of textile apparel 0.89 3.9 846 Clothing accessories, of textile fabrics 0.87 1.1 42 Rice 0.85 1.9 844 Women's, girls' clothing, knitted 0.83 0.1 585 Plastic materials 0.76 3.3 842 Women's, girls' clothing, not knitted 0.71 4.3 843 Men's, boys' clothing, knitted 0.69 1.1 44 Unmilled maize (excl. sweet corn) 0.61 1.2 634 Veneers, plywood, etc. 0.56 0.2 35 Fried, salted, smoked fish 0.40 0.7 292 Crude vegetable materials 0.38 1.0 34 Fresh, chilled or frozen fish 0.29 0.1 269 Worn clothing and textile articles, rags 0.27 0.3 424 Fixed vegetable oils, non-soft 0.20 0.2 232 Synthetic and reclaimed rubber 0.13 0.5 36 Crustaceans, mollusks, etc. Sum 83.3 (1% share = US$5.1 million) 0.49 1.9 842 Women's, girls' clothing, not knitted 0.46 1.5 841 Men's, boys' clothing, not knitted 0.35 0.2 121 Tobacco (unmanufactured or refuse) 0.31 1.3 851 Footwear 0.13 0.3 848 Non-textile clothing, headgear 0.08 0.2 36 Crustaceans, mollusks, etc. 0.06 0.4 658 Made-up articles of textiles 0.14 0.5 971 Gold, non-monetary (excl. gold ores) Sum 97.3 (1% share = US$14.49 million) 2010 Export 1.96 31.8 892 Printed matter 1.89 12.0 843 Men's, boys' clothing, knitted 1.84 20.7 844 Women's girls' clothing, knitted 1.43 20.1 845 Articles of textile apparel 0.96 1.5 231 Natural rubber, gums (unprocessed) 0.89 0.6 247 Wood in rough or squared 0.84 0.1 277 Natural abrasives 0.72 0.6 42 Rice 0.71 3.2 851 Footwear 0.68 1.3 785 Motorcycles, motorized and not 0.57 2.4 723 Civil engineering plant and equip. 0.56 0.4 896 Works of art, collectors' pieces & antiques 0.32 0.8 841 Men's, boys' clothing, not knitted 0.29 0.3 846 Clothing accessories, of textile fabrics 0.06 0.0 246 Wood in chips or particles Sum 95.7 (1% share = US$14.12 million) NOTES: 1. Trade value is at 2000-constant prices. 2. "Share" is the percentage share in total exports. SOURCES: Author's calculations (data are from Comtrade online database). TABLE 4 Products with High RCA and Measure of Export Diversification 1985 1990 1995 High RCA products (RCA>0) [A] 18 16 19 Total ranked products [B] 40 77 123 Ratio of high RCA products 0.45 0.21 0.15 to total [A]/[B] Share of high RCA products (%) 58.89 82.94 83.30 Standard deviation of RCA index 0.868 1.172 1.133 2000 2005 2010 High RCA products (RCA>0) [A] 17 14 15 Total ranked products [B] 152 165 166 Ratio of high RCA products 0.11 0.08 0.09 to total [A]/[B] Share of high RCA products (%) 97.23 97.26 95.72 Standard deviation of RCA index 1.411 1.432 1.503 NOTE: For 1985-1995 the ratio of high RCA products is rather high, most likely due to the use of partners' trade data. For 2000-2010 Cambodia's trade data are available and used for analysis. SOURCE: Author's calculations (data are from Comtrade online database). TABLE 5 Trends in Export Diversification from the Galtonian Regressions Coefficient Period ([[gamma].sub.k]) (std-err) N=93 obs. RCA index 1 1995-2000 0.329 (0.310) 1995-2005 0.431 (0.423) 1995-2010 0.268 (0.285) 2 2000-2005 1.220 ([dagger]) (0.183) 2000-2010 0.960 ([dagger]) (0.192) 3 2005-2010 0.743 ([dagger]) (0.119) Coefficient ([[beta].sub.k]) Period (std-err) N=93 obs. drca 1 1995-2000 0.329 (0.310) 1995-2005 0.431 (0.423) 1995-2010 0.267 (0.285) 2 2000-2005 1.220 ([dagger]) (0.183) 2000-2010 0.960 ([dagger]) (0.192) 3 2005-2010 0.743 ([dagger]) (0.119) Period Description N=93 obs. 1 1995-2000 Insignificant relationship between [RCA.sub.95] and [RCA.sub.00] 1995-2005 Insignificant relationship between [RCA.sub.95] and [RCA.sub.05] 1995-2010 Insignificant relationship between [RCA.sub.95] and [RCA.sub.10] 2 2000-2005 Specialization in high RCA products increases 2000-2010 Small change in the degree of diversification 3 2005-2010 Diversification toward initially low RCA products NOTES: (1.) The symbol ([dagger]) denotes significance at the 1 per cent level. (2.) Year 1985 and 1990 are excluded from the regressions due to missing data. (3.) The number of observations is reduced to 93 in favour of complete data for 1995-2010. (4.) The variable drca is the deviation from the mean value (alternatively the median value). The estimated coefficient [[beta].sub.k] does not differ from each other regardless of the measure used for calculating drca. SOURCE: Author's calculations. TABLE 6 RCA Ranking Trend of Garment and Footwear Products Industry/Commodity SITC 1985 RCA Rank Men's, boys' clothing, 841 -- -- not knitted Women's, girls' clothing, 842 -0.50 26/40 not knitted Men's, boys' clothing, knitted 843 0.14 14/40 Women's, girls' clothing, 844 0.83 5/40 knitted Articles of textile apparel 845 -0.95 34/40 Textile clothing accessories 846 0.65 6/40 Non-textile clothing, headgear 848 - Footwear 851 - Industry/Commodity 1990 1995 RCA Rank RCA Rank Men's, boys' clothing, -- -- -- -- not knitted Women's, girls' clothing, -0.04 17/77 0.76 9/123 not knitted Men's, boys' clothing, knitted -0.20 21/77 0.71 10/123 Women's, girls' clothing, 0.48 13/77 0.85 7/123 knitted Articles of textile apparel -1.43 54/77 0.95 4/123 Textile clothing accessories -0.34 24/77 0.89 5/123 Non-textile clothing, headgear - -1.55 64/123 Footwear -1.53 57/77 -0.47 28/123 Industry/Commodity 2000 2005 RCA Rank RCA Rank Men's, boys' clothing, 0.76 9/152 0.46 8/165 not knitted Women's, girls' clothing, 0.79 8/152 0.49 7/165 not knitted Men's, boys' clothing, knitted 2.02 1/152 2.04 2/165 Women's, girls' clothing, 1.79 2/152 2.07 1/165 knitted Articles of textile apparel 1.42 4/152 1.45 4/165 Textile clothing accessories -0.08 20/152 -1.00 33/165 Non-textile clothing, headgear 0.39 13/152 0.13 11/165 Footwear 0.45 12/152 0.31 10/165 Industry/Commodity 2010 RCA Rank Men's, boys' clothing, 0.32 13/166 not knitted Women's, girls' clothing, -0.17 20/166 not knitted Men's, boys' clothing, knitted 1.89 2/166 Women's, girls' clothing, 1.84 3/166 knitted Articles of textile apparel 1.43 4/166 Textile clothing accessories 0.29 14/166 Non-textile clothing, headgear -0.09 17/166 Footwear 0.71 9/166 SOURCE: Author's calculations (data are from Comtrade online database).
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|Publication:||Journal of Southeast Asian Economies|
|Date:||Dec 1, 2013|
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