World trade, which was substantially reduced in 2009 due to the global economic crisis, has begun to recover this year. However, global imbalances have not been completely remedied, and are expected to become bottlenecks that will hinder sustainable growth of the global economy. This study analyzes the changing patterns of comparative advantage since the early 1990s and investigates the sources of comparative advantage in major countries including the US, EU, China, Japan, Korea, the ASEAN countries, India, Brazil, Mexico, and Russia among others.
In the second chapter, we analyze the various types of comparative advantage indexes for the above-mentioned 10 countries. The analysis of Balassa's Revealed Comparative Advantage (RCA) reveals that the RCA indexes for Korea, India, Russia, and Brazil turned out to be relatively high. The analysis of the Index of Revealed Symmetric Comparative Advantage (RSCA) indicates that Korea, China, the ASEAN countries, the EU countries, Brazil, and Russia are currently maintaining comparative advantage in the world market. Analysis of index of trade concentration reveals that Korea, Japan, the ASEAN countries, India, and Brazil concentrate on specific export products. When we decompose the intra-industry trade (IIT) into horizontal trade, high-quality vertical trade, and low-quality vertical trade, it reveals that the share of Korea's horizontal trade has increased, while low-quality vertical intra-industry trade dropped recently and high-quality vertical intra-industry trade has stabilized.
The third chapter investigates the dynamic patterns of comparative advantage using various approaches including the Markov transition matrix, the marginal intra-industry index, and the Galtonian regression models. The analysis of the Markov transition matrix reveals that the probability of products staying in the same level of comparative advantage is relatively high. The measurement of the marginal intra-industry index (MIIT), which decomposes the inter-industry trade into increase in the previous specialization (IPS) and the specialization shifts (SS), indicates that the marginal intra-industry trade index increased before the global economic crisis in 2008, but dropped after the crisis. The estimation of the Galtonian regression models reveals non-existence of β-specialization in most countries.
The fourth chapter derives a consolidated regression equation to estimate the sources of comparative advantage, integrating the Heckscher-Ohlin model, the Ricardian model, and the gravity model. It also sets up a consistent dataset for the 65-country and 42-industry based on the GTAP, the World Bank, and the UN database.
The estimation results generally confirm the three competing models. The signs of the estimates such as production factors and total factor productivity turned out to be positive in all significant results. In addition, the gravity variables including the distance variable and dummies such as borders, languages, colony, and FTA explain the changes in trade share very well.
The explanatory power of the three competing models, however, turned out to be different depending on regional and sectoral groups. A sign of the capital turned out to be negative in case of the regressions for the natural resource intensive sector, but they are not statistically significant. In case of the Ricardian model, this paper does not indicate that technological difference is statistically significant for the sectoral groups. It is interesting to see that the sign of the colony dummy for developed countries, other European countries, and Central America turned out to be different from the prediction. It is also notable that the sign of the FTA dummy for Africa turned out to be negative due to the trade diversion effect.
The fifth chapter examines the relationship between measured comparative advantage according to the factor proportions (Heckscher-Ohlin-Vanek-Leamer) hypothesis and Korea's embodied trade against its major trading partners.
The results reveal that Korea is most abundant in unskilled labor and least abundant in skilled labor when measured against the United States and Japan. The opposite is observed when measured against China. The results also show some evidence that Korea's human capital abundance is increasing between 1995 and 2005, but the extent is still quite small.
The sixth chapter suggests future policy directions as follows. First, Korea needs to set up policies to diversify its exports and identify promising competitive products in the world market. In addition, it needs to upgrade the technological competitiveness in order to grow into a major trading nation. Second, Korea should strengthen the various sources of comparative advantage to adjust itself to the changing world trade structure and homogenizing consumer demands. Korea needs to set up global FTA networks to make the best of its sources of comparative advantage. Third, Korea needs to set up an institutional framework to support the accumulation of human capital. It is because the importance of human capital relative to physical capital has been increasing as a source of comparative advantage in Korea.