Competitiveness Analysis Method Competitiveness Analysis and Factors Affecting Trade Flow of Natural Rubber in International Market

8 RCA analysis method to investigate the condition of Hungarian agricultural competitiveness in the international market. The results showed that an agricultural commodity in Hungary is not yet highly competitive in the international market. RCA was also used in another previous study, conducted by Serin, et al. 2008. The research is looks at the tomato, olive oil and fruit beverages industries in Turkey and their competitiveness in the EU market. The purpose of Serin’s research was to give the information to the government regarding the competitiveness of the three goods from Turkey in the international market. This information was intended to help the Turkish government make a policy to develop the commodity, which had the highest RCA. The result showed that the olive oil and fruit beverages industries have high competitiveness, while the tomato industry does not. Wu, et al. 2012, focused on the rabbit meat industry in China, with the aim to provide information to the government in order to develop this industry. The results from this study indicate that China’s rabbit meat industry is highly competitive in comparison to other exporting countries. The RCA analysis method is also often used to see the competition among the producing countries of commodities around the world. Valenciano, et al. 2012 conducted a study, which aims to determine the competitiveness of pear commodities in the world market. In this study, Valenciano look at the condition of each country’s competitiveness as a pear exporter in the world market, and then determined which countries have high competitiveness or low competitiveness. Leishman, et al. 2012 also had interesting research employing the use of the RCA method. They conducted research regarding the wool commodities on the world market. The results indicate that Australia is a country that has the highest competitiveness in the world for wool. The result of the RCA method essentially aims to determine which countries are indeed having high competitiveness or low competitiveness in a good compared to other exporting countries. If the results show a high level of competitiveness, then the country should maintain the condition, specialize to these goods and trade with another country. On the other hand, if the results show a low level of competitiveness, then the country should improve the trade condition and switch to specialize in other commodities. Morshed, et al. 2012 conducted research regarding the competitiveness of fruit litchi and longan fruit in China. The results showed that the commodities are not competitive, so the researchers suggested to the government to improve the system of agribusiness from upstream to downstream in both commodities, thus anticipating an increase in its competitiveness in the international market. In addition to the RCA method, there are some researchers that use the Policy Analysis Matrix PAM as a method of analysis in their research. Besides being able to determine the condition of competitiveness, PAM is also used by researchers with the intent of looking at the impact of government policies, while the scope of the research is usually on a local basis, not international. The PAM method has been used in several research studies that are related to competitiveness and the impact of policy on some commodities. Several examples of the PAM method have been conducted in Indonesia, primarily Wiji 2007 which focused on citrus commodities in West Kalimantan, while Nuryanti 2010 did a research about cocoa in Kudat District. From the results of these three 9 studies, the comparative advantage, competitive advantage and also the impact of government policy on these three commodities can be established. Other previous usage of PAM was the research conducted by Mohanty, Fang, and Chaudhary 2010, which aim to determine the impact of policies on the efficiency of cotton production in five cities in India. In line with Mohanty et al., research conducted by Ngwira, et al. 2012 aims to verify the impact of policies on the efficiency of groundnut production in Malawi. Furthermore, research conducted by Esmaili 2008 regarding the competitiveness of shrimp in southern Iran aims to investigate the differences of social advantages to gain market shrimp in southern Iran. Additionally, Esmaili 2008 also discusses the impact of the subsidy policy on the competitiveness of commodity shrimp. The purpose of the present research is to look at the general condition of the competitiveness of three main natural rubber-exporting countries in the international market. In addition, researchers also want to identify the level of competitiveness of major competitor countries in terms of exports of natural rubber in the international market. Researchers will not discuss the impact of government policies on trade in natural rubber. With these considerations, the researcher chooses to utilize the RCA competitiveness analysis method, supported by panel data regression analysis for gravity models, which is expected to explain the phenomena.

2.2 Gravity Model and Variables

A gravity model is an econometric model that is often used to describe international trade between various countries. In present times, increased trade flows have been written in a number of studies that analyze the sources of trade. Gravity initial concept models are based on Newtons law and explain that the gravitational force between two objects is directly proportional and is influenced by the masses of the two objects, and the distance between them squared. Initially, the concept of the gravity model of bilateral trade is only applied between two countries. In modern times however, there are widely used gravity models that are adapted to the current phenomenon, which will be discussed by researchers. Felipe and Kumar 2010 use a gravity model to determine the relationship between trade facilitation of international trade flows in Asia. The results showed that with the increase in trade facilitation in Asia, there will be an increase in the volume of international trade. Moreover, research conducted by Abid 2012 also showed that the increasing trade facilitation in Asian countries would increase the volume of international trade. The results of the estimation of gravity models can demonstrate the potential for trade between countries. Potential trade between countries can be measured by using the estimated coefficients resulting from the gravity equation. This potential trade analysis is performed with comparing the potential trade with the actual trade of a country. Thapa 2012 conducted research that analyses the trade flow in Nepal. The results indicate that the actual trade volume has exceeded the potential of trade to some of the destination countries. However, Nepal still has nine countries, which have an ideal potential trade. Another study that uses gravity models with the aim of determining the potential of a countrys trade was research performed by Mohammad 2009, which examines the potential of 10 international trade in Australia. This trade potential analysis is not only used to look at one country, but can also determines the potential trade of a countries union. Research conducted by Rahman et al. 2006 aims to determine the potential of trade within the South Asian Free Trade Agreement SAFTA. Research related to international trade using gravity models has attracted a lot of attention by many researchers who wish to study it further. Several studies have been conducted to analyze variables of gravity models or factors that affect the dependent variable, which in this case is the trade value. Some of the research indicates that the independent variable of the gravity model that influences the trade value can either deliver the same conclusion, give conflicting results or even that the effect cannot be inferred. An example of this is the exchange rate variable, with some researchers Aricia, 1998; Rahman et al. 2006 stating that the exchange rate factor has a positive effect on the trade value. Kristjánsdóttir 2005, however, obtained contrary results that show that the exchange rate has a negative effect on trade value. Further, Meiri 2013 concluded that the exchange rate does not significantly influence trade value. The variables of the gravity model’s that were used in several previous studies will be explained as follows:

2.2.1 Gross Domestic Product GDP

International trade flows can be evaluated by comparing the real Gross Domestic Product GDP of the exporting country with the real GDP of the importing country. The different structure of the economy and the GDP from the two countries will increase the volume of trade Soto, 1996 in Ghosh et al., 2005. An increase in the exports from each country will increase the GDP, income, employment opportunities and foreign exchange. Therefore, the product that cannot be effectively produced domestically will be increasingly imported. In short, the GDP will increase in an international trade situation from both exports and imports. GDP is the main variable of gravity models, where studies using the gravity model must be contained the GDP for one of independent variable. Researchers typically use either real GDP or GDP per capita for their research; with the specific measurement being dependent on the purpose of their research. If researchers use GDP per capita between the two countries, the purpose of their research is to see the effect of the GDP, as well as to simultaneously observe the influence of the population on the dependent variable Ghosh et al., 2005; Schumacher et al., 2007; Kien, 2009; Rojid, 2006. Estimating the gravity model for a single commodity can lead to biased estimations if the GDP of the exporting countries are used as a proxy for the economic size of the exporter Pujiati, 2014. Thus, the production of natural rubber is used in this study as a proxy for the exporter’s economic size .

2.2.2 Economic Distance and Remoteness

The distance variable is used to measure the transport costs incurred during international trade. The further the distance between the two countries, the higher the transportation costs. Economic distance is calculated based on the distance between the two countries multiplied by the current world oil prices. Some research indicates a negative effect on the economic distance. The greater the distance between the producing country and the importing destination, the lower