Tiến Sĩ Comparative Advantage of Vietnam s Textile and Clothing Industry

Luận án tiến sĩ năm 2013
Đề tài: Comparative Advantage of Vietnam’s Textile and Clothing Industry
Lợi thế so sánh của ngành dệt may Việt Nam
Luận án được trình bày bằng tiếng Anh


LIST OF CONTENTS
Chapter 1: INTRODUCTION . 1
1.1. Problem Statement 1
1.2. Objectives . 3
1.2.1. General Objective . 3
1.2.2. Specific Objectives . 4
1.3. Dissertation structure 4
Chapter 2: LITERATURE REVIEW 5
2.1. Theoretical Foundation . 5
2.1.1. Definition of comparative advantage . 5
2.1.2. Theories of comparative advantage 7
2.1.2.1. Ricardian model 7
2.1.2.2. Heckscher – Ohlin model (H-O) . 10
2.1.3. Factors affecting comparative advantage . 14
2.1.3.1. Technological Superiority . 14
2.1.3.2. Resource endowments . 14
2.1.3.3. Availability of credit . 16
2.1.3.4. Economies of scale 16
2.1.3.5. Technological Gap (Benefits of an Early Start) and Product Cycle . 17
2.1.3.6. Demand Patterns: Demand Considerations . 17
2.1.3.7. National and International Policies . 17
2.1.3.8. Factors affecting export performance . 18
2.1.4. Comparative Advantage framework . 21
2.1.5. Competitive advantage . 21
2.1.6. Linking comparative advantage and competitive advantage 24
2.1.7. Measuring comparative advantage . 27
2.1.7.1. Balassa’s Index of Revealed Comparative Advantage . 27
2.1.7.2. The Donges and Riedel Measure 27
2.1.7.3. Wolter Index 28
2.1.7.4. Michaely Index 28
2.1.7.5. Export Share Ratio 29
Chapter 3: RESEARCH METHODOLOGY 30
3.1. Measuring comparative advantage . 30
3.1.1. Revealed comparative advantage . 30
3.1.2. Trade balance index 31
3.1.3. Trade specialization 32
3.1.4. Market share . 32
3.1.5. Alternative Specifications of Revealed Comparative Advantage 33
3.2. Analyzing the Structural Stability . 34
3.2.1. Stability of Revealed Comparative Advantage 34
3.2.2. Intra-Distribution Dynamics . 35
3.3. Indices of Mobility 36
3.3.1. Shorrocks Index (M1
) . 36
3.3.2. Shorrocks Index (M2
) . 37
3.3.3. Sommers and Conlisk Index (M4
) 37
3.4. Measure of Export Concentration . 37
3.5. Trade Compatibility 38
3.6. Modeling the determinants of comparative advantage . 38
3.6.1. Model description . 38
3.6.2. Model specification 40
3.6.3. Choosing between FEM and REM . 41
3.7. Data sources 41
Chapter 4: EMPIRICAL FINDINGS . 43
4.1. Vietnam’s Export Performance in Textile and Clothing 43
4.1.1. Overview of Vietnam’s Economy and Textile and Clothing Exports 43
4.1.2. Structure of Vietnam’s Textile and Clothing Exports 45
4.1.3. Direction of Vietnam’s textile and clothing exports 47
4.2. Patterns of Vietnam’s Comparative Advantage in Textile and Clothing . 51
4.2.1. Patterns of Vietnam’s Comparative Advantage in Textile and Clothing . 51
4.2.2. The Dynamics of Vietnam’s Comparative Advantage in Textile and Clothing53
4.2.3. Concentration of Vietnam Textile and Clothing Exports . 56
4.3. Determinants of Vietnam’s Comparative Advantage and Competitiveness in
Textile and Clothing . 57
4.4. Trade Complementary and Forecasting Vietnam’s Potential Exports 63
Chapter 5: CONCLUSIONS AND POLICY IMPLICATIONS 65
APPENDICES . 67
REFERENCES . 69


ABSTRACT
This Study is the first to attempt a systematic evaluation of the comparative
advantage for Vietnam’s Textile and Clothing Industry in the global market.
The study is timely as Vietnam has made an extensive effort to change its
international trade for some years and the consequent increase in competitive
pressures and technology transfers, is expected to have led to a restructuring of the
economy such that the composition of Textile and Clothing exports Volumne
reflects Vietnam’s comparative advantage in the global economy.
The timeliness of the study is also reinforced by the fact that increased trade
integration of Vietnam over the past few years is likely to have contributed to a shift
in comparative advantage in Textlile and Clothing Industry in the world market.
The Study identifies the pattern of comparative advantage using the
Balassa (1989) index for export data. The index has been calculated at the sector and
commodity level of the Harmonized System of classification. The Dissertation also
analyses comparative advantage according to factor intensity. The analysis shows
broad in the structure of comparative advantage of Vietnam’s Textile and Clothing
Industry.
I do hope that this Dissertation will serve as a useful source and provide valuable
reference material for researchers and policy makers associated with and interested in
export promotion strategy in Vietnam.


Chapter 1
INTRODUCTION
1.1. Problem Statement
The textile and clothing industry has been historically the core industrial sector in Vietnam’s
economy due to its advantage in terms of factor endowments and market scale. Many
reasons explain why this has long been the key industry of Vietnam: it is a sector with
requires light investment; the technology is simple; it mostly uses unskilled labor, etc.
During the past years, Vietnam’s textile industry has made remarkable efforts and become a
main component in the textile industry in Southeast Asia and an important member in the
global textile market. With around 3,800 companies including state-owned enterprises, joint
stock and limited companies, the textile and clothing industry is the leading export sector of
Vietnam, making a considerable contribution to the country’s prosperity.
Vietnam’s textile and clothing industry has developed rapidly in recent years and has
become a main component of the country’s economy. The export value of textile and
clothing products has contributed the second largest share in the country’s total export
value. This sector has helped significantly to the increase in source of foreign exchange and
Vietnam’s gross national product (GDP). In 2006, the export value of the textile and
clothing products was 5.8 billion US dollars, making this industry the second most
important export sector of Vietnam only after crude oil. In 2007, Vietnam became an
official member of the World Trade Organization (WTO). This has provided Vietnam great
opportunities to develop, especially in terms of international trade as Vietnam receives equal
treatment and benefits in trade like other members of WTO, and it was not be subjected to
quotas anymore. Moreover, joining the WTO helps Vietnam access to global market,
expand export markets and increase value of goods exported. The textile and clothing
industry sector has seen an impressive period of development, with the trade volume
increasing around 8% after ten years, from 2001 to 2011. Despite the global economic
depression during the past years, the export value of this sector has continued to increase,
exceeding 11 billion USD in 2010, an increase of 24% compared with 2009, and 14 billion
USD in 2011, an increase of 38% compared with 2010. The production and exports of
Vietnamese textile and clothing products contribute a considerable share in the world,
accounting for 18.6% of the world’s total exports in textile industry in 2010. Currently,
Vietnam ranks number five in the world in terms of textile and clothing exports, with over 2
million people working in this sector, accounting for nearly 5% of the country’s total labor
force (VINATEX, 2012). The increase in export value of the sector in recent years results
from the expansion in export market. Beside maintaining the traditional markets such as the
US, EU, Japan, the Vietnamese textile and clothing companies has expanded to new export
markets such as Korea, Taiwan, the Middle East, and Singapore.
Rapid development of Vietnam’s textile and clothing industry derives from many factors,
including abundant low-cost labor force and a stable political environment. Among them,
the most important advantage is human capital. The Vietnamese labor force has two main
characteristics, the first is its low price as well as the higher quality compared with some
other countries. Vietnam has a young population with a high percentage of people at
working age, an annual source supplementing the country’s labor force. Vietnam has gained
many economic benefits in the textile industry without a loss of the comparative advantage
in labor supply, and such an advantage is a driving force for the textile and clothing
industry’s further development. The second characteristic is its sustainability. Expansion of
urbanization and improvement in education in Vietnam has provided more high quality
labor for the textile and clothing industry, guaranteeing the supply of workers for future
development.
Besides, trade and economic policies have also contributed to the development of the
Vietnamese textile and clothing industry and helping Vietnam reach higher position in
global market of textile and clothing products. Textile and clothing industry has been
declared as an key industry of the country’s economy. Therefore, the Vietnamese
government has adopted policies promoting an export-led growth strategy supported by
strong foreign direct investment (FDI) inflows. The state monopoly of foreign trade was
abandoned. The non tariff barriers were reduced. Maximum import tariff rates were also
decreased. These measures have helped to reduce the anti-export bias resulting from the
structure of trade protection, which tended to reduce the profitability of exporting compared
to producing for the domestic market (Athukorala, 2006 cited in Jean-Rafael and Jean
Pierre, 2009). Tariff exemptions were also implemented for imported inputs used in the
manufacturing export products as well as tax incentives and Export processing zones have
multiplied (Jean-Rafael and Jean Pierre, 2009). Implementation of trade agreements have
affected trade liberalization and increased market access. After joining international
economic organizations such as ASEAN (in 1997) and WTO (in 2007), and signing bilateral
trade agreements (for example, with US in 2000), tariffs on imports and exports were
significantly reduced or dropped, bringing various economic gains and especially increased
market access.
It is obvious that Vietnam possesses a comparative advantage in textile and clothing
manufacturing. Nonetheless, Vietnam’s textile industry is facing various difficulties, such as
excessive resource reliance, most enterprises are medium and small size, low technology
and value added, indisposition in trade structure and highly concentrated export markets.
Another difficulty is the workers’ low level of skill, partly resulting in the low
competitiveness of textile products. Vietnamese textile workers are considered inferior in
terms of professional skills compared with other textile export countries. Among over 2
million people working in textile and clothing sector, percentage of skillful workers are
relative low.
Furthermore, supporting industries of textile and clothing manufacturing are still
undeveloped and cannot meet the demand from this sector. Domestic materials for this
industry are seriously deficient and the textile company are unable to rely on domestic
suppliers. Despite Vietnam having a natural conditions suitable for growing cotton, the total
cotton output is still not enough to provide for the textile industry. In 2007, Vietnamese
textile and clothing companies had to import around 90% of cotton material needed, and
70% of other materials for manufacturing such as fiber and fabric. Shortage of local
materials in one of main reasons resulting in decrease in business efficiency and in
comparative advantage of Vietnamese textile and clothing enterprises.
On the other hand, the textile and clothing industry is labor intensive. Development of the
Vietnam’s textile and clothing industry is still determined by labor costs. Vietnam’s
comparative advantage in textile industry mainly result from low labor costs. However, this
kind of advantage is tending to decrease as developed countries are persistently investing
new technologies into their textile and clothing industries and the advantage of cheap labor
in developing countries tends to be weakened along with improvement in productivity in
developed countries. The developed countries can maintain higher profit in their textile and
clothing industry while at the same time reduce production.
It is therefore urgent for Vietnam have policies and measures to strengthen comparative
advantage of textile industry and overcome serious domestic obstacles. This dissertation
aims at an in-depth investigation of comparative advantage of Vietnam’s textile and
clothing industry and brings corresponding suggestions.
1.2. Objectives
1.2.1. General Objective


REFERENCES
Anderson, J. E., 1979. A Theoretical Foundation for the Gravity Equation, American
Economic Review 69: 106-116.
Anderson J.E. and van Wincoop, E., 2001. Gravity with Gravitas: A Solution to the Border
Puzzle, NBER Working Paper 8079.
Anderson, J. and Marcouiller, D., 2002. Insecurity and the Pattern of Trade: An Empirical
Investigation. Review of Economics and Statistics 84, 342-352.
Antonucci, D. and Manzocchi, S., 2006. Does Turkey have a special trade relation with the
EU? A gravity model approach. Economic Systems 30, 157 – 169.
Bacchetta, M., 2007. Releasing Export Constraints: The Role of Governments, AERC
Research Project on Export Supply Response Capacity Constraints in Africa, Paper
No. ESWP_01. Available at
http://www.aercafrica.org/documents/export_supply_working_papers/Bachetta18DB3
7.pdf
Balassa, B., 1965. Trade Liberalization and ‘Revealed’ Comparative Advantage. The
Manchester School 33: 99-123.
Balassa, B., 1977. ‘Revealed’ Comparative Advantage Revisited: An Analysis of Relative
Export Share of the Industrial Countries, 1952-1971. The Manchester School of
Economic and Social Studies 33: 94-124.
Baier, S. L. and Bergstrand, J. H., 2002. On the Endogeneity of International Trade Flows
and Free Trade Agreements. Presented at the American Economic Association annual
meeting, January 2002.
Baldwin, R.E., 1979. Determinants of trade and foreign direct investment: further evidence.
Review of Economics and Statistics, 61(1): 40–80.
Bergstrand, J.H., 1989. The Generalized Gravity Equation, Monopolistic Competition, and
the Factor-Proportions Theory in International Trade, The Review of Economics and
Statistics 67: 474-481.
Biggs, T., 2007. Assessing Export Supply Constraints: Methodology, Data, and
Measurement, AERC Research Project on Export Supply Response Capacity
Constraints in Africa, Paper No. ESWP_02. Available at
http://www.aercafrica.org/documents/export_supply_working_papers/BiggsT_Assess
ing.pdf.
Bougheas, S., Demetriades, P. and Morgenroth, E., 1999. Infrastructure, transport costs and
trade. Journal of International Economics 47,169-189.
Brasili, A., Epifani, P. and Helg, R. 2000. On the dynamics of trade patterns. De Economist
148 (2): 233-257.
Dalum, B., Laursen, K. and Villumsen, G., 1998. Structural Change in OECD Export
Specialisation Patterns: De-Specialisation and ’Stickiness’. International Review of
Applied Economics 12: 423-443.
Deardorff, A.V. (1995), Determinants of Bilateral Trade: Does Gravity Work in a NeoClassic World? NBER Working Paper 5377.
De Benedictis, L. and Tamberi, M., 2001. A Note on the Balassa Index of Revealed
Comparative Advantage, Quaderni di Ticerca No. 158. Department of Economics,
University of Ancona, Italy.
Evans, H.D., 1989. Comparative Advantage and Growth: Trade and Development in Theory
and Practice, Brighton: Harvester Wheatsheaf.
Frantzen, D., 2008. Technology, Competitiveness and Specialization in OECD
Manufacturing. Journal of Economic Studies 35: 44-68.
Fugazza, M., 2004. Export Performance and Its Determinants: Supply and Demand
Constraints, Policy Issues in International Trade and Commodities Study Series No.
26.
Galton, F., 1889. Correlations and Their Measurement. Nature 39: 238.
Glick, R and Rose, A., 2002. Does a Currency Union affect Trade? The Time Series
Evidence. European Economic Review 46(6), 1125-1151.
Gu, W., Awokuse, T.O. and Yuan, Y., 2008. The Contribution of Foreign Direct Investment
to China’s Export Performance: Evidence from Disaggregated Sectors. Available at
http://purl.umn.edu/6453.
Hausman, J. A., 1978. Specification Tests in Econometrics. Econometrica 46: 1251–1272.
Helpman, E. and Krugman, P. 1985. Market Structure and Foreign Trade. Increasing
Returns, Imperfect Competition, and the International Economy, The MIT Press,
Cambridge, MA/London.
Hillman, A.L., 1980. Observation on the Relation between ’Revealed Comparative
Advantage’ and Comparative Advantage as Indicated by Pre-Trade Relative Prices.
Weltwirtschaftliches Archiv 116: 315-321.
Hinloopen, J. and van Marrewijk, C., 2001. On the empirical distribution of the Balassa
index. Weltwirtschaftliches Archiv 137: 1-35.
Hinloopen, J. and van Marrewijk, C., 2004. Dynamics of Chinese Comparative Advantage.
TI 2004-034/2 Tinbergen Institute Discussion Paper.