Revealed Comparative Advantage RCA of Natural Rubber Major Exporter

34 producer and exporter in the world, producing around 2-3 million tons per year, or approximately 30 percent of global production. Malaysia is the third largest producer and exporter with approximately 1 million tons per year, accounting for around 10 percent of the world’s total production. The estimation results of the RCA analysis for natural rubber, in the period from 2003 through 2013 shows that the natural rubber production in these three countries have a comparative advantage in the international market as indicated by an RCA value greater than one Table 8. The average value of the RCA for Thailand, Indonesia and Malaysia respectively, are 29.66, 29.36 and 9.15. If the RCA value is greater than one, it indicates that the share of the natural rubber commodity, out of all commodity categories, that is exported from the three main exporter countries is greater than the share of the natural rubber commodity worldwide. From the three main exporter countries, Thailand has the highest RCA, followed by Indonesia and Malaysia. Thai natural rubber has the highest average of RCA in comparison to the other top exporting countries, although in some periods Indonesia could surpass Thailand’s RCA. The high RCA in Thailand is primarily due to the high proportion of exports coming from natural rubber in relation to all exported commodities. Thai natural rubber exports have reached accounted for an average of 4 percent of all exports from 2003 to 2013, while reaching as high as 6 percent in 2011. This indicates that natural rubber is one of the most important commodities in Thailand, where rubber plantations occupy roughly 3 million hectares of land, mostly in the southern region where climatic conditions further enable enables high yields about 76 tons of rubber per hectare. Furthermore, the Thai government has made strategic plans in an effort to boost the number of rubber plantations in the northern, eastern and central regions, which will ideally raise natural rubber production by an additional 250,000 tons by 2017 TCEB, 2014. Table 8 The Estimation Results of Revealed Comparative Advantage RCA of Natural Rubber in International Market Year Thailand Indonesia Malaysia 2003 39.21 27.56 10.14 2004 36.83 31.63 11.24 2005 34.55 31.06 11.11 2006 32.64 33.66 10.98 2007 30.40 35.34 10.05 2008 30.11 34.84 9.64 2009 29.07 28.65 8.29 2010 24.16 27.76 8.61 2011 22.15 22.24 7.35 2012 18.16 19.73 5.33 2013 28.99 30.46 7.85 Average 29.66 29.36 9.15 Source: Author’s elaboration with data from UN COMTRADE, 2014 35 Meanwhile, the proportion of exports coming from natural rubber production in Indonesia, in relation to all exported commodities ranged from 2-6 percent in the period between 2003 and 2013. The extent of competitiveness between Thailand and Indonesia tend to fluctuate from year to year, which indicates a high level of competition between the two in terms of gaining market share for natural rubber. From 2003 to 2005, Thailand’s RCA was much larger than that of Indonesia’s RCA. This is due to the average value of Thailand’s natural rubber exports 3.3 billion US being much larger than the value of Indonesian natural rubber exports 2 billion US. Additionally, Thailands proportion of natural rubber exports in relation to the total world exports of natural rubber was the highest, at 41 percent, while Indonesia accounted for only 25 percent. Moreover, the share of Thailand’s natural rubber export value in comparison to its overall commodity export value reached 3.5 percent, while Indonesian rubber achieved less than 3 percent. Conversely in the period between 2006 and 2013, the Indonesian RCA exceeds the Thai RCA in every year except for 2009. This was likely due to the significant increase in the value of Indonesian natural rubber exports during that period. The average value of Indonesian natural rubber exports reached 6.5 billion US, while Thailand reached 7.5 billion US annually during that period. Although Thailand’s export value is higher than Indonesia’s, the difference in their value of exports of natural rubber is declining from year to year. The average difference in the period from 2006 to 2013 amounted to 0.9 billion US, while the previous period 2003-2005 reached 1.2 billion US. Additionally, the share of the Indonesian natural rubber export value to the entire Indonesian commodity catalogue export value reached 4.4 percent, which exceeded Thailand’s which only reached 4 percent. The highest RCA for Thailand was 39.21, a value which was achieved in 2003. The reasoning behind this elevated RCA value is the result of large natural rubber export values into the world market, at approximately 2.7 billion US and with the proportion of Thai natural rubber exports to the total commodity export being roughly 3.5 percent. Additionally, the proportion of the worlds natural rubber exports to total world exports for all commodities was only 0.09 percent, which lead to high competitiveness in Thailand during that period. Indonesia achieved its highest RCA value of 35.34 in 2007. At that time, the share of Indonesian natural rubber exports to the world’s natural rubber market reached 30.37 percent, however, the highest share was achieved in 2013, by 35.24 percent. In 2013, Indonesian natural rubber exports were received in 70 countries, including the United States and China, which became the primary market. Meanwhile, the highest RCA for Malaysia was 11.24 in 2004. In 2004, the share of Malaysian natural rubber exports to the world’s natural rubber export total was the highest in Malaysian history, at 16 percent with an export value of 1.4 billion US. As the third largest natural rubber exporter in the world, Malaysia is still competitive. However, when compared to the other two main exporting countries, Malaysia’s competitiveness is quite low. That being said, the share of Malaysian natural rubber exports to the worlds natural rubber exports is still in the range of 13 percent. Moreover, the share of natural rubber exports from Malaysia in some destination countries is relatively low, the United States and China for example 36 import mainly from Thailand and Indonesia. Additionally, the proportion of Malaysian natural rubber exports to total exports of all commodities from Malaysia is still very low, approximately 1-2 percent, a proportion which is largely due to the overall decrease in natural rubber production in Malaysia.

6.1.2 Revealed Comparative Advantage in Destination Countries

The natural rubber commodity from the three main exporting countries Thailand, Indonesia and Malaysia demonstrates a comparative advantage against the ten major importing countries. This can clearly be seen by the RCA value in each exporting country being greater than one in the period from 2003 to 2013 Figure 14. The RCA value greater than one implies that the three major exporting countries are able to compete with other prominent exporting countries, such as India and Vietnam. Natural rubber production of good quality and high quantity is one of the factors that allow for natural rubber from the three main exporting countries to stay in great demand in the international market. China, the Republic of Korea and India are the major natural rubber export destinations of Thailand, demonstrated by the highest average RCA values. This indicates that Thailand has a comparative advantage for these three destination countries. For example, the value of Thai natural rubber exports to China in 2011 reached 4 billion US, which is the largest export value of the three main exporting countries between 2003 and 2013. The natural rubber commodity is the second largest of Thailand’s export commodities to China after Computer and Components Products. In 2011, Thailand reached its highest natural rubber export to the Republic of Korea and India. The average share of Thailand’s natural rubber export value to the share of all commodities exported from Thailand to the Republic of Korea and India, amounted to 12 percent and 4 percent, respectively. These figures support the fact that the main export destination countries of Thailand are China, the Republic of Korea and India, which had the highest RCA and the highest Thai natural rubber export value compared to Thai natural rubber exports to other countries. Figure 14 The Average Value of RCA from Three Main Exporting Countries, 2003 – 2013 Source: Author’s elaboration with data from UN COMTRADE, 2014 0.00 50.00 100.00 150.00 200.00 250.00 300.00 RC A Importing Countries Thailand Indonesia Malaysia 37 On the other hand, the main natural rubber export destination countries of Indonesia are the US and Canada. The value of Indonesian natural rubber exports to the US in 2011, for example, is the highest value of Indonesian natural rubber exports during the period from 2003 to 2013, amounting to 2.7 billion US. This figure is directly proportional to the average RCA value of Indonesian natural rubber in the US, which reached 85.60 during the period between 2003 and 2013. It is noteworthy that the average RCA value for Indonesian natural rubber in Canada, as shown in Figure 14, is very high at 274.72. This is due to Indonesia being the main natural rubber exporter for Canada, which had an average export value of 0.4 billion dollars from 2003 to 2013, far exceeding the value of exports from other exporter countries. The proportion of the value of Indonesian natural rubber exports to the total value of natural rubber exports to Canada in 2013 was more than 50 percent. Additionally, the average proportion of worlds natural rubber exports to Canada out of the total world exports of all commodities to Canada accounted for only 0.20 percent during the period from 2003 to 2013. Finally, Malaysia is the EUs second largest trading partner with the ASEAN countries, with bilateral trade in goods reaching 31.9 billion Euros in 2010 and the EUs 22 nd largest trading partner overall MGCC, 2012. Germany has intensive trade relations with Malaysia and is one of the main foreign investors into the Malaysian economy. Moreover, among members of the European Union, Germany is Malaysia’s leading trading partner, especially in the natural rubber sector. In 2011, the value of Malaysian natural rubber exports to Germany amounted to 0.5 billion US, which is the highest natural rubber export value to the Germany when compared with the export value from other exporting countries. This is in line with a very high RCA value for Malaysian natural rubber in Germany, which reached 76.72 during the period from 2003 to 2013.

6.2 Factors Affecting Natural Rubber Trade in International Markets

The natural rubber trade to the top ten export destinations is influenced by many factors. These factors can be derived from either the exporting the importing countries that will affect the natural rubber export value that is traded. These factors need to be identified and analyzed to determine whether they have significant positive or negative effects on the value of exports. In this section, the results of the estimation of the factors that affect the value of exports of natural rubber in the international market will be presented.

6.2.1 Estimation of Natural Rubber Export Model in International Markets

This research is completed with the use of panel data, which is a composite of the time series and cross-sectional data. There are two common approaches applied to panel data, namely Fixed Effect Model FEM or Random Effects Model REM. Both are distinguished based on the assumption of either the presence or absence of correlation between the errors with independent variables. The estimation approach used for this study is the FEM. The FEM is useful when the individual effects and the explanatory variables are correlated with Xit or have patterns that are not random. This assumption allows for the error term of individual and time effects to be part of the intercept. There are several techniques