Agriculture Reference
In-Depth Information
China has been in a trade deficit position with ASEAN with respect
to land-intensive agricultural products (Figure 12.5). This situation
strengthened rapidly after 2001. The trade deficit in land-intensive
products rose from US$1.5 billion in 2001 to US$3.95 billion in 2005.
On the whole, China's agricultural trade with ASEAN has been in deficit
since 1998 and the deficit has been increasing (Figure 12.1); however,
Chna mantans a trade surplus wth ASEAN n labour-ntensve agrcultural
products. Moreover, the trade surplus in labour-intensive agricultural
products has increased quickly in recent years. Therefore, China's rising
trade deficit in agriculture is the result of the rapid increase in imports
of land-intensive agricultural products, mainly palm oil and rubber. These
mported commodtes are used to meet the changng consumpton
preference for hgh-qualty food wth ncome growth and the demand for
raw materals by Chna's hgh-growth ndustry.
Revealed comparative advantage
In this section, we examine comparative advantage in China and ASEAN
as revealed through their agricultural trade and see how it is reflected in
trade between the two partners. First, we present the definition of the
revealed comparative advantage (RCA) index adopted in this study. Second,
we compare the RCA by commodity in the two economies in 2005. Finally,
we examne changes n the RCA to assess the export potental of the two
economes.
Definition of revealed comparative advantage (RCA)
It is difficult if not impossible to measure comparative advantage directly.
The most common approach to ndrect estmaton draws on the prncple
of RCA proposed by Balassa (1965). The logc of ths prncple s that the
trade of a country is generated by its underlying comparative advantage,
therefore, its real exports and imports can be used to infer the underlying
pattern of comparative advantage. Following this principle, several
indicators of RCA have been developed. In this exercise, we adopt the
widely used net export ratio (NER), which is defined as
