Specialization and Comparative Advantage in OIC Countries: Evidence and Analysis

Specialization and Comparative Advantage: Evidence from Top Ten Main Actors of OIC Countries in Disruptive Era Dyah Titis Kusuma Wardani Universitas Muhammadiyah Yogyakarta

Background Technology plays an important role in international trade and commerce since international trade is one of the sources of growth. As Salvatore (2004) said that, international trade is as one of the engines of growth. Technology intensive product is in Empirical Trade Analysis (ETA) with Standard International Trade Classification (SITC) Rev 2 -3 digits 42 out of 57 OIC member countries join WTO.Top ten OIC countries have potential trade in inter and intra-OIC trade.

Background What is Empirical Trade Analysis (ETA) Based on the United Nations Conference on Trade and Development (UNCTAD) and World Trade Organization with SITC-3 digits classification, research organization of Netherland namely Empirical Trade Analysis (ETA) groups SITC-3 digits into six product groups.

Background Empirical Trade Analysis (ETA) with SITC Rev 2 codes; 3 digits level consist of: Product group A: primary products (83 sectors) Product group B: natural-resource intensive products (21 sectors) Product group C: unskilled-labor intensive products (26 sectors) Product group D: technology intensive products (62 sectors) Product group E: human-capital intensive products (43 sectors) Sectors not classified according to intensity (5 sectors)

Research Question How does specialization How does specialization and comparative advantage of and comparative advantage of top ten main actors in the OIC top ten main actors in the OIC countries change? countries change? Text Here

Research Objective This paper aims to examine specialization and comparative advantage of top ten main actors in the OIC countries

Research Methodology Product Mapping Analysis To see the catch up process among top ten mai n actors of OIC member countries, in this study we will use product mapping analysis. Comparative Advantage Analysis Empirically, to estimate the comparative ad vantages of products that are exported by OIC top ten main actors (OIC Executive Su mmary, 2016) including Indonesia and Turk ey to the world, the index of Revealed Sym metric Comparative Advantage (RSCA) will be used. ?????=(??? ???)/(???+???) Where TBIij shows the country's trade balance in dex i for the product group (SITC) j; xij and mij sh ow exports and imports of product group j by cou ntry i. Extreme TBI value of -1 indicates that the country only imports, whereas if the TBI value is +1, it can be interpreted that the country only exp orts. If the TBI value is between -1 and +1, it can be said that the country carries out exports and i mports. The TBI value is negative indicating the net importer; and a positive TBI value indicates t he net exporter. Add Text ???/??? ???/?? ..(1) Easy to change colors, photos and Text. ?????= ????? 1 ?????+1 (2) ??????=

Figure 1.2 TBI on Average: Top Ten Main Actors of OIC in 1996, 2006 and 2016 Figure 1.1 RSCA on Average: Top Ten Main Actors of OIC in 1996, 2006 and 2016 RSCA 1.0 TBI 0.8 1.0 0.6 0.8 0.6 0.4 0.4 0.2 0.2 0.0 Bahrain Indonesia Malaysia Morocco Oman Pakistan Qatar Saudi Arabia Turkey Egypt 0.0 -0.2 Bahrain Indonesia Malaysia Morocco Oman Pakistan Qatar Saudi Arabia Turkey Egypt -0.2 -0.4 -0.4 -0.6 -0.6 -0.8 -0.8 -1.0 -1.0 1996 2006 2016 1996 2006 2016

Figure 1.3 Product Mapping of Four Categories Group C: Group C: Comparative disadvantage & Net exporter (RSCA<0; TBI<0) Group Group A A: : Comparative advantage & Net exporter (RSCA>0; TBI>0) Trade Balance Index TBI>0 Group D: Group D: Comparative disadvantage & Net importer (RSCA<0; TBI<0) Group Group B B: : Comparative advantage & Net importer (RSCA>0; TBI<0) TBI<0 RSCA<0 RSCA>0 Revealed Symmetric Comparative Advantage

Figure Figure 1.4 1.4 Illustration of Four Illustration of Four Quadrants of Quadrants of Product Mapping Product Mapping Product Mapping 1 0.8 0.6 A C 0.4 0.2 TBI 0 -1 -0.8 -0.6 -0.4 -0.2 0 0.2 0.4 0.6 0.8 1 -0.2 -0.4 D B -0.6 -0.8 -1 RSCA Point in each quadrant represent the combination of the highest RSCA and TBI of each product

Table 1.2 OIC Main Actors of Top Twenty SITC Product 2016 Ranked based on RSCA Table 1.1 OIC Main Actors of Top Twenty SITC Products 1996 Ranked based on RSCA Bahrain 684, 671, 424, 522, 46, 512, 844, 531, 47, 843, 282, 288, 652, 893, 812, 693, 56, 699, 661, 74 Bahrain 684, 281, 693, 334, 278, 671, 333, 512, 672, 562, 676, 652, 61, 673, 897, 122, 791, 98, 24, 846 232, 634, 424, 687, 245, 287, 75, 341, 36, 72, 431, 74, 635, 322, 851, 71, 763, 844, 653, 333 Indonesia 424, 232, 687, 322, 431, 245, 91, 634, 72, 75, 267, 289, 287, 36, 671, 651, 341, 71, 37, 85 Indonesia 424, 431, 232, 762, 687, 634, 763, 247, 761, 776, 848, 248, 759, 341, 245, 91, 72, 764, 75, 881 Malaysia 424, 431, 687, 848, 232, 72, 776, 91, 512, 341, 335, 634, 762, 898, 683, 247, 277, 513, 759, 261 Malaysia 271, 522, 36, 244, 562, 685, 37, 56, 57, 75, 842, 54, 845, 287, 681, 292, 34, 844, 633, 278 Morocco 271, 562, 244, 522, 37, 773, 36, 411, 843, 54, 633, 842, 844, 56, 278, 612, 585, 57, 689, 658 Morocco 333, 941, 122, 783, 271, 34, 844, 46, 273, 682, 1, 35, 723, 424, 111, 625, 74, 784, 781, 845 Oman 941, 333, 46, 273, 562, 512, 511, 335, 661, 684, 22, 411, 672, 334, 1, 931, 122, 25, 424, 48 Oman 42, 658, 652, 263, 651, 848, 659, 844, 847, 611, 846, 653, 842, 291, 655, 872, 75, 845, 36, 941 Pakistan 42, 652, 658, 46, 651, 842, 848, 847, 611, 846, 661, 845, 263, 75, 269, 512, 62, 696, 843, 278 Pakistan 333, 341, 562, 673, 522, 334, 583, 844, 274, 843, 273, 74, 842, 723, 1, 554, 625, 111, 744, 288 Qatar 341, 274, 931, 333, 334, 288, 46, 598, 522, 896, 269, 786, 431, 635, 291, 692, 791, 98, 634, 611 Qatar 333, 334, 512, 516, 511, 562, 269, 522, 274, 693, 583, 289, 661, 25, 271, 673, 554, 659, 22, 691 Saudi Arabia 333, 516, 583, 334, 512, 941, 511, 22, 288, 341, 522, 562, 793, 692, 513, 684, 554, 58, 24, 642 Saudi Arabia 46, 659, 273, 25, 673, 846, 661,278, 844, 47, 655, 783, 613, 652, 57, 62, 847, 693, 775, 782 Turkey 121, 91, 845, 846, 46, 673, 62, 658, 57, 56, 659, 843, 847, 848, 431, 844, 75, 58, 554, 54 Turkey 271, 659, 562, 941, 46, 54, 62, 57, 551, 265, 24, 661, 56, 842, 292, 971, 263, 652, 245, 761 Egypt 323, 265, 42, 941, 263, 334, 245, 658, 651, 54, 75, 333, 844, 684, 652, 273, 677, 659, 696, 846 Egypt

Table 1.4 OIC Main Actors of Top Twenty SITC Products 2016 Ranked by RSCA and TBI Table 1.3 OIC Main Actors of Top Twenty SITC Products 1996 Ranked by RSCA and TBI Bahrain 684, 512, 522, 671, 282, 844, 424, 288, 843, 46, 36, 47, 531, 893, 693, 699, 652, 812, 56, 641 Bahrain 334, 684, 562, 512, 672, 693, 671, 281, 278, 676, 652, 791, 282, 846, 522, 658, 341, 61, 98, 897 424, 245, 232, 687, 322, 289, 431, 91, 897, 634, 287, 36, 37, 844, 75, 671, 71, 851, 72, 122 Indonesia 687, 341, 232, 245, 634, 851, 71, 74, 72, 844, 36, 842, 322, 75, 843, 424, 287, 35, 763, 635 Indonesia 424, 848, 91, 431, 341, 247, 687, 762, 512, 25, 248, 898, 335, 634, 761, 524, 621, 245, 752, 246 Malaysia 424, 431, 761, 762, 634, 763, 848, 247, 248, 91, 25, 232, 341, 687, 245, 72, 897, 621, 821, 844 Malaysia 271, 37, 244, 562, 843, 411, 36, 633, 54, 689, 288, 842, 844, 56, 522, 681, 773, 57, 34, 287 Morocco 271, 36, 37, 244, 842, 845, 685, 56, 681, 844, 522, 57, 34, 846, 562, 46, 633, 287, 54, 659 Morocco 511, 941, 562, 512, 411, 273, 46, 684, 335, 274, 524, 334, 672, 34, 91, 773, 931, 22, 48, 288 Oman 271, 844, 34, 941, 682, 783, 288, 35, 282, 273, 122, 845, 46, 842, 881, 554, 784, 424, 781, 334 Oman 46, 652, 42, 842, 658, 846, 847, 848, 843, 845, 611, 661, 35, 36, 273, 651, 62, 696, 34, 11 Pakistan 42, 846, 844, 652, 658, 842, 848, 847, 659, 611, 651, 653, 843, 845, 655, 291, 263, 941, 34, 894 Pakistan 341, 274, 333, 931, 334, 288, 46, 269, 598, 522, 291, 896, 786, 611, 635, 791, 612, 431, 692, 98 Qatar 334, 512, 562, 274, 289, 516, 511, 269, 522, 583, 25, 693, 685, 288, 271, 611, 661, 554, 673, 111 Qatar 516, 583, 512, 341, 288, 334, 511, 562, 522, 274, 793, 513, 22, 684, 692, 554, 896, 642, 58, 111 Saudi Arabia 334, 512, 562, 274, 289, 516, 511, 269, 522, 583, 25, 693, 685, 288, 271, 611, 661, 554, 673, 111 Saudi Arabia 46, 659, 47, 273, 25, 846, 62, 661, 673, 844, 57, 58, 658, 845, 847, 56, 278, 783, 897, 775 Turkey 91, 46, 846, 845, 56, 62, 843, 658, 844, 57, 58, 847, 673, 848, 54, 842, 659, 223, 661, 48 Turkey 271, 62, 659, 562, 941, 971, 842, 46, 56, 245, 661, 611, 761, 265, 57, 292, 551, 24, 54, 773 Egypt 42, 323, 941, 245, 844, 334, 658, 265, 846, 842, 684, 843, 659, 263, 56, 652, 696, 651, 273, 62 Egypt

Figure 1.5 Product Mapping: Top Ten Products of Bahrain between 1996 and 2016 Figure 1.5.1 Product Mapping : Top Ten Primary Products of Bahrain 1996-2016 in A Quadrant Other fixed vegetable oils, fluid or solid, crude, refined Other fixed vegetable oils, fluid or solid, crude, refined Waste and scrap metal of iron or steel 281 Iron ore and concentrates 424 Petroleum products, refined 334 424 282 Other crude minerals 278 Sugar and honey 61 Non-ferrous base metal waste and scrap, nes Crustaceans and molluscs, fresh, chilled, frozen, salted, etc 288 Edible products and preparations, nes 36 98

1.5.2 Product Mapping: Top Ten Unskilled-labor Intensive Products of Bahrain 1996-2016 in A Quadrant Under garments of textile fabrics, not knitted or crocheted Cotton fabrics, woven (not including narrow or special fabrics) 844 652 846 Under-garments, knitted or crocheted Made-up articles, wholly or chiefly of textile materials, nes 658 Outerwear knitted or crocheted, not elastic nor rubberized 845

Figure 1.5.3 Product Mapping: Top Ten Technology Intensive Products of Bahrain 1996-2016 in A Quadrant Inorganic chemical elements, oxides and halogen salts 522 512 Alcohols, phenols etc, and their derivatives Alcohols, phenols etc, and their derivatives 562 Fertilizers, manufactured 512 Inorganic chemical elements, oxides and halogen salts 522 Civil engineering, contractors' plant and equipment and parts, nes 723 Condensation, polycondensation and polyaddition products 582

Figure Figure 1. 6 1.6.1 Product Mapping : Top Ten Primary Products of Indonesia 1996 Product Mapping : Top Ten Primary Products of Indonesia 1996- -2016 in A Quadrant 1. 6 Product Mapping : Top Ten Products of Indonesia between 1996 and 2016 Product Mapping : Top Ten Products of Indonesia between 1996 and 2016 2016 in A Quadrant Figure Figure 1.6.1 INDONESIA-PIMARY PRODUCTS 1996 1 .5 TBI 0 -.5 -1 -1 -.5 0 .5 1 RSCA 232 424 245 Natural rubber latex; rubber and gums Other fixed vegetable oils, fluid or solid, crude, refined Fuel wood and wood charcoal 424 232 322 Other fixed vegetable oils, fluid or solid, crude, ref Natural rubber latex; rubber and gums Coal, lignite and peat Animal and vegetable oils and fats, processed, and waxes Fuel wood and wood charcoal Cocoa Ores and concentrates of base metals, nes Spices Gas, natural and manufactured Crustaceans and molluscs, fresh, chilled, frozen, salted, etc Cocoa Animal and vegetable oils and fats, processed, and waxes Coal, lignite and peat 431 245 72 287 75 341 75 287 Spices Ores and concentrates of base metals, nes Crustaceans and molluscs, fresh, chilled, frozen, salted, etc Gas, natural and manufactured 36 72 36 341 431 322

Indonesia Indonesia primary such such as as SITC SITC [ [232 crude, crude, refined refined; ; [ [245 Spices Spices; ; [ [341 341] ] Gas, etc etc. . [ [72 72] ] Cocoa Cocoa; ; [ [431 peat peat. . These These commodities commodities are rankings rankings are are not not the primary product 232] ] Natural 245] ] Fuel Gas, natural 431] ] Animal product in in 1996 Natural rubber Fuel wood wood and natural and and manufactured manufactured; ; [ [36 Animal and and vegetable are consistent consistent in in 20 the same same. . 1996 and rubber latex, and wood and 2016 2016 have latex, rubber rubber and wood charcoal charcoal; ; [ [287 the same same product gums; ; [ [424 424] ] Other 287] ] Ores Ores and and concentrates 36] ] Crustaceans Crustaceans and and molluscs vegetable oils oils and and fats, fats, processed, 20 years years steady steady in in top have almost almost the and gums product pattern Other fixed fixed vegetable concentrates of of base molluscs, , fresh, processed, and and waxes top ten ten the the highest pattern for vegetable oils, for export export to to the oils, fluid base metals, metals, nes fresh, chilled, chilled, frozen, waxes; ; [ [322 322] ] Coal, highest RSCA RSCA. . However, the world world fluid or or solid, nes. . [ [75 frozen, salted, Coal, lignite lignite and However, their solid, 75] ] salted, and their

Figure Figure 1.6.2 1.6.2 Product Mapping : Top Ten Unskilled Labor Intensive Products of Indonesia 1996 Product Mapping : Top Ten Unskilled Labor Intensive Products of Indonesia 1996- -2016 in A Quadrant 2016 in A Quadrant INDONESIA-UNSKLLIED LABOR INT 1996 1 .5 TBI 0 -.5 -1 -1 -.5 0 .5 1 RSCA Indonesia unskilled-labor intensive product in 1996 and 2016 have similar formation of top 10 commodities. Commodities are dominated on footwear outwear, textile and garment also articles of apparel, and clothing accessories. Nevertheless, there is outlier commodity in 1996, that is furniture and parts of thereof. Surprisingly, in 2016 the number one commodity in unskilled-labor intensive is pottery.

Figure 1.6.3 Product Mapping: Top Ten Technology Intensive Products of Indonesia 1996-2016 in A Quadrant INDONESIA-TECHNOLOGY INT 1996 1 .5 TBI 0 -.5 -1 -1 -.5 0 .5 RSCA In 1996, there is only one commodity that includes in technology intensive product such as Fertilizers, manufactured. In contrast, in 2016 there are some, or four commodities that includes in technology intensive products such as Alcohols, phenols etc., and their derivatives, Office machines, Nitrogen-function compounds and Equipment for distribution of electricity. Therefore, the pattern of Indonesia technology intensive product from 1996 to 2016 is change dramatically

Figure 3.6 Product Mapping: Top Ten Products of Turkey between 1996 and 2016 TURKEY-PRIMARY PRODUCTS 1 .5 TBI 0 Figure 3.6.1 Product Mapping : Top Ten Primary Products of Turkey 1996-2016 -.5 -1 -1 -.5 0 .5 1 RSCA

Figure 3.6.2 Product Mapping: Top Ten Unskilled Labor Intensive Products of Turkey 1996-2016 TURKEY-UNSKILLED LABOR INT 1996 1 .5 TBI 0 -.5 -1 -1 -.5 0 .5 1 RSCA

Figure 3.6.3 Product Mapping: Top Ten Technology Intensive Products of Turkey 1996-2016 TURKEY-TECHNOLOGY INT 1996 .5 0 TBI -.5 -1 -1 -.5 0 .5 RSCA

Conclusions 1. Between period of 1996 and 2016 OIC main actors such as Morocco, Turkey, Saudi Arabia and Egypt were able to maintain the comparative advantage in two sectors, such as primary products and unskilled labor intensive product. 2. Countries like Bahrain, Oman and Qatar were able to maintain the comparative advantage only in primary products. 3. Indonesia, Pakistan and Malaysia, they together, were able to maintain their comparative advantage in their primary products. Hence, the have different characteristics of factor endowments; 4. Indonesia and Pakistan are countries with abundant labors, Indonesia and Pakistan were able to maintain comparative advantage in unskilled-labor intensive products. 5. In contrast, Malaysia is more technology intensive, since Malaysia s has scarce of labors compare to Indonesia.

These research finding is in line with Heckscher-Ohlin (H-O) model. H-O model is a mathematical model of international trade developed by Eli Heckscher and Bertil Ohlin. This model is based on David Ricardo's theory of comparative advantage and predicts patterns of trade and production based on the number of endowment factors of a country. This model essentially states that a country will export products that use cheap and abundant factors and import products that use rare factors

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RSCA 1996 RSCA 2006 RSCA 2016 Table 3.5 RSCA Analysis Table 3.5 RSCA Analysis Indonesia Case of Top 10 Commodities for Three Case of Top 10 Commodities for Three ETA Groups ETA Groups Indonesia CommCode Commodity No. CommCode Commodity No. CommCode Commodity No. Primary Products 1 1 1 Other fixed vegetable oils, fluid or solid, crude, refined Other fixed vegetable oils, fluid or solid, crude, refined Natural rubber latex; rubber and gums 232 424 424 2 2 2 Other fixed vegetable oils, fluid or solid, crude, refined Natural rubber latex; rubber and gums Natural rubber latex; rubber and gums 424 232 232 3 3 3 Fuel wood and wood charcoal Coal, lignite and peat Coal, lignite and peat 322 322 245 4 4 4 Fuel wood and wood charcoal Ores and concentrates of base metals, nes RESULT AND DISCUSSION 287 72 Cocoa 245 Unskilled-Labor Intensive Products 5 6 851 Footwear 5 6 651 Textile yarn 5 6 651 Textile yarn Under garments of textile fabrics, not knitted or crocheted Under garments of textile fabrics, not knitted or crocheted 844 844 851 Footwear 7 7 7 Fabrics, woven, of man-made fibers (not narrow or special fabrics) Under garments of textile fabrics, not knitted or crocheted Fabrics, woven, of man-made fibers (not narrow or special fabrics) 653 653 844 8 8 8 Fabrics, woven, of man-made fibers (not narrow or special fabrics) Men's and boys' outerwear, textile fabrics not knitted or crocheted 842 851 Footwear 653 Technology Intensive Products 9 9 9 Alcohols, phenols etc, and their derivatives Alcohols, phenols etc, and their derivatives Fertilizers, manufactured 512 562 512 513 Carboxylic acids, and their derivatives 10 10 Office machines 10 Alcohols, phenols etc, and their derivatives 751 512

RSCA 1996 Commodity RSCA 2006 Commodity RSCA 2016 Commodity CommCode No. CommCode No. CommCode No. Primary Products 1 1 1 Meal and flour of wheat and flour of meslin Meal and flour of wheat and flour of meslin Tobacco unmanufactured; tobacco refuse 121 46 46 2 Tobacco unmanufactured; tobacco refuse 2 2 Stone, sand and gravel 121 273 91 Margarine and shortening 3 3 Eggs, birds', and egg yolks, fresh, dried or preserved 3 Fruit and nuts, fresh, dried 57 Meal and flour of wheat and flour of meslin 46 25 Table 3.6 RSCA Analysis Table 3.6 RSCA Analysis 4 4 4 Turkey Case of Top 10 Turkey Case of Top 10 Stone, sand and gravel Sugar confectionery and preparations, non-chocolate 273 278 Other crude minerals 62 Commodities for Commodities for Unskilled-Labor Intensive Products 5 5 5 Three ETA Groups Three ETA Groups Under-garments, knitted or crocheted Outerwear knitted or crocheted, not elastic nor rubberized Floor coverings, etc 845 846 659 6 6 Under-garments, knitted or crocheted 6 Floor coverings, etc 659 Under-garments, knitted or crocheted 846 846 7 7 Under garments of textile fabrics, not knitted or crocheted 7 Made-up articles, wholly or chiefly of textile materials, nes Made-up articles, wholly or chiefly of textile materials, nes 658 658 844 Technology Intensive Products 8 8 8 Household type equipment, nes Equipment for distribution of electricity Household type equipment, nes Equipment for distribution of electricity 775 775 773 9 9 Food-processing machines (non-domestic) and parts thereof, nes 9 773 Household type equipment, nes 775 727 10 Food-processing machines (non-domestic) and parts thereof, nes 10 Tractors (other than those falling in heading 74411 and 7832) 10 Food-processing machines (non-domestic) and parts thereof, nes 727 727 722