Investigating the competitiveness of vietnams agricultural sector a multi level approach

LIST OF ABBREVIATIONS AFTA: ASEAN Free Trade Area APEC: Asia-Pacific Economic Cooperation ASEAN: Association of Southeast Asian Nations CA: Comparative Advantage CEPEA: Comprehensive Eco

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HOÀNG VĂN VIỆT

INVESTIGATING THE COMPETITIVENESS OF VIETNAM’S AGRICULTURAL SECTOR: A

MULTI-LEVEL APPROACH

DOCTOR OF PHILOSOPHY DISSERTATION

Ho Chi Minh City, December 2017

MINISTRY OF EDUCATION AND TRAINING

UNIVERSITY OF ECONOMICS HO CHI MINH CITY

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HOÀNG VĂN VIỆT

INVESTIGATING THE COMPETITIVENESS OF VIETNAM’S AGRICULTURAL SECTOR: A

MULTI-LEVEL APPROACH

Major: Doctor Dissertation on Development Economics

Code: 62310105

ACADEMIC ADVISERS:

1 Assoc Prof Dr Trần Tiến Khai

2 Assoc Prof Dr Từ Văn Bình

A dissertation submitted to the University of Economics Ho Chi Minh City for

the degree of DOCTOR OF PHILOSOPHY

Ho Chi Minh City, December 2017

This dissertation is dedicated to the memory of my father-Hoàng Văn Thọ, to my mother-Trần Thị Sang, and to my daughter-

Hoàng Nguyễn Minh Châu

“The more I study science, the more I believe in God”

-Albert

Einstein-ACKNOWLEDGEMENT

First of all, I would like to express my best gratitude to Prof Trần Tiến Khai, Prof Matthew Gorton, and Prof Carmen Hubbard Prof Trần Tiến Khai brings me in the research career with the initial lesson, advice, and passion Prof Matthew Gorton and Prof Carmen Hubbard raise me up to the international research standards with the advice, the lesson, and the research cooperation opportunities

Second, I am deeply thankful to my teachers: Dr Phạm Khánh Nam, Prof Nguyễn Trọng Hoài, Prof Lionel Hubbard, Prof Peter Goldsmith, Prof Từ Văn Bình, Dr Trương Đăng Thụy, and Prof Nguyễn Ngọc Vinh for the lessons, guides, and advice Third, I am really indebted to my colleagues: Mr Nguyễn Khánh Duy, Ms Nguyễn Quỳnh An, Ms Nguyễn Hồng Mai, Ms Nguyễn Phan Trúc Phương, and Mr Hồ Minh Chí They contribute the important parts to my achievement of this dissertation

Especially, I would express my gratitude and respect to Prof Nguyễn Đông Phong who indirectly empower me with the strategic and excellent policies for young lecturers Moreover, I am thankful to the board of professors, the independent reviewers, journal editorial boards, and journal reviewers for their constructive reviewing and comments

I am wholeheartedly grateful to my family for their love, trust, support, sharing, and encouragement This dissertation would be never completed without them

Ho Chi Minh City, December 2017

Hoàng Văn Việt

DECLARATION

I, Hoàng Văn Việt, declare that the PhD dissertation entitled “Investigating and Comparing the Agricultural Competitiveness of Vietnam” strictly conforms to the regulations and the rules of Ministry of Education and Training and the University of Economics Ho Chi Minh City This dissertation contains no material that has been submitted previously, in whole or in part, for the award of any other academic degree

or diploma Except where otherwise indicated, this dissertation is my own work

Ho Chi Minh City, December, 2017

Hoàng Văn Việt

TABLE OF CONTENTS

LIST OF TABLES v

LIST OF FIGURES vii

LIST OF APPENDICES viii

LIST OF ABBREVIATIONS x

CHAPTER 1: INTRODUCTION 1

1.1 Background 1

1.2 Research gap identification 6

1.3 Research objectives and questions 9

1.4 Brief of research methodology, scope, and data 12

1.5 Expected significance and contribution 14

1.6 The structure and outline of the dissertation 16

CHAPTER 2: LITERATURE REVIEW 18

2.1 Definition of competitiveness 18

2.2 Evolution of competitiveness theory 23

2.3 Frameworks of competitiveness 34

2.3.1 Economic and production indicators 36

2.3.2 Trade performance indices 47

2.4 Summary and the general framework of the dissertation 56

CHAPTER 3: RESEARCH METHODOLOGY AND DATA 60

3.1 The trade performance indices 60

3.1.1 Revealed comparative advantage (RCA) 60

3.1.2 Relative trade advantage (RTA) 61

3.1.3 Normalized revealed comparative advantage (NRCA) 62

3.1.4 Dynamics of comparative advantage indicators 64

3.1.5 Complementarity and substitutability analysis 68

3.1.6 Consistency analysis 70

3.1.7 The data for the trade performance indices 71

3.2 The economic and production indicators in the PAM model 72

3.2.1 Private profitability (PP - D) 73

3.2.2 Private cost ratio (PCR) 73

3.2.3 Social profitability (SP - H) 74

3.2.4 Domestic resource cost (DRC) 74

3.2.5 Social cost-benefit (SCB) 75

3.2.6 Nominal protection coefficient (NPC) 75

3.2.7 Effective protection coefficient (EPC) 76

3.2.8 Profitability coefficient (PC) 76

3.2.9 Subsidy ratio to producers (SRP) 77

3.2.10 The data and estimations for the PAM indicators 77

3.2.11 Sensitivity analysis of the PAM indicators 82

CHAPTER 4: VIETNAM’S AGRICULTURAL TRADE COMPETITIVENESS: THE CROSS-SECTIONS ANALYSIS 84

4.1 Vietnam’s agricultural trade competitiveness by the RCA 84

4.1.1 Measuring the static competitiveness 84

4.1.2 Analyzing the dynamics of the competitiveness indicators 86

4.2 Vietnam’s agricultural trade competitiveness by the RTA 89

4.2.1 Measuring the static competitiveness 89

4.2.2 Analyzing the dynamics of the RTA indicators 91

4.3 Vietnam’s agricultural trade competitiveness by the NRCA 95

4.3.1 Measuring the static competitiveness 95

4.3.2 Analyzing the dynamics of of the NRCA indicators 95

4.4 The consistencies of the trade performance indices: sector-ranking 99

CHAPTER 5: THE ASEAN COUNTRIES’ AGRICULTURAL TRADE PATTERNS: THE CROSS-COUNTRIES ANALYSIS 102

5.1 The agricultural international trade performance of ASEAN countries 103

5.1.1 Agricultural competitiveness by the RCA 103

5.1.2 Agricultural competitiveness by the RTA 105

5.1.3 Agricultural competitiveness by NRCA index 106

5.1.4 Analyzing the dynamics of agricultural competitiveness indicators 108

5.2 The trade agricultural complementarity of the ASEAN countries 110

5.2.1 The agricultural trade complementarity of the ASEAN countries 110

5.2.2 The agricultural export similarity of the ASEAN countries 111

5.2.3 The agricultural complementarity by Spearman coefficients 113

5.2.4 The impact of external markets and factors 116

5.3 The consistencies of the trade performance indices: country-ranking 118

CHAPTER 6: THE COMPETITIVENESS OF ALTERNATIVE AGRICULTURAL CROPS: A CASE STUDY OF BEN TRE 120

6.1 Measuring the comparative advantage of the alternative crops 121

6.1.1 The comparative advantage of rice 121

6.1.2 The comparative advantage of coconut 124

6.1.3 The comparative advantage of pomelo 126

6.2 Indicators and sectors consistency and comparison analysis 129

6.3 Sensitive analysis of the comparative advantage indicators 132

6.3.1 Climate changes 132

6.3.2 Water and land charges 133

6.3.3 The parameters of assuming changes of the variables 134

CHAPTER 7: CONCLUSION AND IMPLICATIONS 137

7.1 Vietnam’s agricultural trade competitiveness 137

7.2 The ASEAN countries’ agricultural trade patterns 139

7.3 Competitiveness of alternative agricultural production systems in Ben Tre 141

7.4 Theoretical analysis and conclusion 143

7.5 Policy implications 145

Re-structuring the agricultural production and trade pattern 146

Maintaining the rankings of strong competitiveness sectors 147

Expanding and enforcing the regional and global integration 148

Building the agricultural production master plans 150

Promoting sustainable agriculture and adapting to climate changes 151

LIST OF MY PUBLICATIONS & PROJECTS 1

LIST OF REFERENCES 2

APPENDICES 28

LIST OF TABLES

Table 2-1: The evolution of competitiveness theory 33

Table 2-2: The measures of competitiveness by level of analysis 35

Table 3-1: The accounting structure of policy analysis matrix 72

Table 3-2: Sample descriptions for the PAM indicators 78

Table 4-1: Vietnam’s top agricultural competitiveness by the RCA 85

Table 4-2: The change of the RCA indicators position between 1997 and 2014 86

Table 4-3: The OLS estimation results for the RCA indicators over three periods 87

Table 4-4: The classifications of RCA values and the interpretations 88

Table 4-5: The M-Shorrocks and Markov transition matrix for the RCA values 88

Table 4-6: The top gaining and losing trends of the RCA indicators 89

Table 4-7: Vietnam’s top agricultural competitiveness by the RTA 90

Table 4-8: The changes of the RTA indicator ranks between 1997 and 2014 91

Table 4-9: The OLS estimation results for the RTA indicators over three periods 92

Table 4-10: The classification of the RTA values and the interpretations 93

Table 4-11: The M-Shorrocks and Markov transition matrix for the RTA values 93

Table 4-12: The top gaining and losing trends of the RTA indicators 94

Table 4-13: Vietnam’s top agricultural trade competitiveness by the NRCA 96

Table 4-14: The changes of the NRCA indicator ranks between 1997 and 2014 96

Table 4-15: The OLS estimation results for the NRCA indicators over time 97

Table 4-16: The classification of the of NRCA values and the interpretations 97

Table 4-17: The Markov transition probability matrix for the NRCA indicators 98

Table 4-18: The top gaining and losing trends of the NRCA indicators 99

Table 4-19: The consistencies the RCA, the RTA, and the NRCA by sector-ranking 100

Table 5-1: The agricultural competitiveness of the ASEAN countries by the RCA 104

Table 5-2: The number of strong agricultural competitive sectors by the RCA 105

Table 5-3: The agricultural competitiveness of the ASEAN countries by the RTA 106

Table 5-4: The agricultural competitiveness of the ASEAN countries by the NRCA 107

Table 5-5: The agricultural competitiveness ranking of the ASEAN countries 107

Table 5-6: The agricultural competitiveness patterns of the ASEAN countries 109

Table 5-7: The Markov transition probability matrices result 109

Table 5-8: The agricultural trade complementarity by the TCI 110

Table 5-9: The agricultural export similarities of the ASEAN countries 112

Table 5-10: The Spearman’s rank correlation coefficients of the RCA indicators 113

Table 5-11: The Spearman’s rank correlation coefficients of the RTA indicators 114

Table 5-12: The Spearman’s rank correlation coefficients of the NRCA indicators 115

Table 5-13: Mean coefficients of the consistency between trade indices 119

Table 6-1: Rice’s PAM summary and comparative advantage indicators (VND) 123

Table 6-2: Rice’s comparative advantage by the trade indices 123

Table 6-3: Coconut’s PAM summary and comparative advantage indicators (VND) 126

Table 6-4: Coconut’s comparative advantage by the trade indices 126

Table 6-5: Pomelo’s PAM summary and comparative advantage indicators (VND) 128

Table 6-6: Pomelo’s comparative advantage by the trade indices 128

Table 6-7: Comparing the competitiveness of different sectors by various indices 131

Table 6-8: The comparative advantage indicators with the land opportunity cost 132

Table 6-9: Sensitivity analysis of the PAM indicators by the climate change 133

Table 6-10: Sensitivity analysis of the PAM indicators by water & land charges 134

LIST OF FIGURES

Figure 2-1: The general analysis framework of the dissertation 59 Figure 5-1: The trend of the ASEAN countries’ agricultural trade complementarity 111 Figure 5-2: The trend of the ASEAN countries’ agricultural export similarity 112 Figure 5-3: The general trend of the Spearman’s rank correlation coefficients 115 Figure 5-4: The shares of the top markets in the ASEAN’s total agricultural export 116 Figure 5-5: The shares of the top markets in the ASEAN’s total agricultural import 117

LIST OF APPENDICES

Appendix 1: Determinants of competitiveness 28

Appendix 2: Multidimensional frameworks 31

Appendix 3: Value chain performance approaches 38

Appendix 4: Benchmarking 41

Appendix 5: The ASEAN countries’ agricultural sectors 45

Appendix 6: Vietnamese agricultural sector 47

Appendix 7: The Agriculture in Ben Tre Province 54

Appendix 8: Agricultural comparative advantages of Vietnam by the RCA 58

Appendix 9: Agricultural comparative advantages of Vietnam by the RTA 59

Appendix 10: Agricultural comparative advantages of Vietnam by the NRCA 60

Appendix 11: ASEAN countries’ agricultural competitiveness by the RCA in 2015 62

Appendix 12: ASEAN countries’ agricultural competitiveness by the RTA in 2015 63

Appendix 13: ASEAN countries’ agricultural competitiveness by the NRCA in 2015 65

Appendix 14: OLS regression of ASEAN countries’ competitiveness indicators 67

Appendix 15: Classes of RCA, RTA, and NRCA values and the interpretations 68

Appendix 16: Markov transition probability matrix for the RCA index 69

Appendix 17: Private and social input cost of rice sector (1000VND) 71

Appendix 18: Private and social input cost of coconut sector (1000VND) 71

Appendix 19: Private and social input cost of pomelo sector (1000VND) 72

Appendix 20: Private and social output of rice sector (1000VND) 72

Appendix 21: Private and social output of coconut sector (1000VND) 73

Appendix 22: Private and social output of pomelo sector (1000VND) 74

Appendix 23: Sensitivity analysis of competitiveness indicators by the output prices 74

Appendix 24: Sensitivity analysis of competitiveness indicators by the fertilizer prices 75 Appendix 25: Sensitivity analysis of competitiveness indicators by the land rent prices 75 Appendix 26: Sensitivity analysis of competitiveness indicators by the crop yields 76

Appendix 27: Sensitivity analysis of competitiveness indicators by the REER 76

Appendix 28: Survey questionnaire for coconut farmer 77

Appendix 29: Survey questionnaire for coconut trader/collector 82

Appendix 30: Survey questionnaire for coconut primary processor 85

Appendix 31: Survey questionnaire for coconut producer/processor 88

LIST OF ABBREVIATIONS

AFTA: ASEAN Free Trade Area

APEC: Asia-Pacific Economic Cooperation

ASEAN: Association of Southeast Asian Nations

CA: Comparative Advantage

CEPEA: Comprehensive Economic Partnership for East Asia

CPTPP: Comprehensive & Progressive Agreement for Trans-Pacific Partnership DRC: Domestic Resource Cost

EAFTA: East Asia Free Trade Area

EEU: Eurasian Economic Union

EFTA: EU Free Trade Agreement

EPC: Effective Protection Coefficient

ESI: Export Similarity Index

FAO: Food and Agriculture Organization

GCI: Global Competitiveness Index

GDVC: General Department of Vietnam Customs

GSO: General Statistics Office of Vietnam

GTTR: Global Travel & Tourism Report

ITC: International Trade Centre

NCI: National Competitiveness Index

NPC: Nominal Protection Coefficient

NRCA: Normalized Revealed Comparative Advantage

OECD: Organization for Economic Co-operation and Development

PAM Policy Analysis Matrix

PC: Profitability Coefficient

PCI: Provincial Competitiveness Index

PCR: Private Cost Ratio

PP: Private Profitability

RCA: Revealed Comparative Advantage

RCEP: Regional Comprehensive Economic Partnership

RMA: Relative Import Advantage

RSCA: Revealed Symmetric Comparative Advantage

RTA: Relative Trade Advantage

RXA: Relative export Advantage

SCB: Social Cost and Benefit

SP: Social Profitability

SRP: Subsidy Ratio to Producers

TCI: Trade Complementarity Index

TPP: Trans-Pacific Partnership

UN Comtrade: United Nations International Trade Statistics Database UNCTAD: United National Conference on Trade and Development

WCY: World Competitiveness Yearbook

WEF: World Economic Forum

WTO: World Trade Organization

CHAPTER 1: INTRODUCTION

1.1 Background

Vietnam’s economic system has been significantly reformed with the goal of building a socialist-oriented market economy since Doi Moi (Renovation) in 1986 and the country has comprehensively integrated into the global economy since the early 1990s Vietnam has become the member of regional and international trade organizations and schemes such as ASEAN Free Trade Area (AFTA), ASEAN Economic Community (AEC), Asia-Pacific Economic Cooperation (APEC), World Trade Organization (WTO), and Trans-Pacific Partnership (TPP-CPTPP) The country has signed bilateral trade agreements with countries and regions such as the United States, Japan, Chile, Korea, Eurasian Economic Union (EEU), and European Communities (EU) Vietnam is going to sign bilateral trade agreements with Israel and

EU Free Trade Agreement (EFTA) Especially, the future trade agreement of ASEAN +

6 will remarkably expand the free trade market and strongly enhance trades between the countries to build up the Regional Comprehensive Economic Partnership (RCEP)

The economic development, industrialization process, and transition of Vietnam

have been significantly supported and contributed by the agricultural sector First,

agricultural export accounts for over 33 percent in 1997 and 17 percent in 2014 of the total export values and contribute foreign exchange to import the essential technology, machines, materials, and other equipment for economic development and

industrialization process Second, the agricultural sector accounts for 26 percent in 1997 and 18.12 percent in 2014 of Vietnam’s gross domestic product Third, Vietnam’s

agricultural sector accounts for more than 48 percent of total employment as the third most dependent country on agricultural employment in the world, just after Bhutan and

Cambodia Fourth, the sector is one of the key economic activities in the rural economy

and an important source of livelihood amongst rural population There is about 67.1 percent of the country’s population living in rural areas in 2014 (GSO, 2017; WB,

2017) Fifth, moreover, the agricultural sectors and rural areas can play the important

roles in both labor supply and demand markets

Though achieving advantage from the natural environment, fertile soil and abundant water resource Vietnam’s agricultural sectors encounter the problems of domination of small-scale farms, negative impact on the environment, cultivation land conversion towards urbanization and industrialization, new challenges from climate changes, increasing input costs, and low productivity Vietnam’s agricultural sector is mainly based on the traditional and land-intensive production methods This makes the agricultural sector to be dependent on the natural conditions and market situations and may cause the farmers the unstable and low incomes Moreover, the agricultural product markets and prices of Vietnam are relatively unstable and fluctuating without the master agricultural production plans in long term These challenges and issues require the government, enterprises, and producers to re-structure and plan the general agricultural sectors The farmers have to make production choices between the alternative crops in their arable lands or fields to increase the productivities and maximize the incomes subject to the farms’ production conditions and the market demands

The conventional economic wisdom would propose that the country should utilize its scarce resources and specialize in producing agricultural commodities which have stronger competitive advantages and generate higher adding values (Yu et al., 2010) The fundamental economic problem is how to allocate limited resources in order to ensure social welfare, including full employment and high living standards for all today and in the future (Latruffe, 2010) However, the scarcity of resources forces us to make choices by answering three basic economic questions: what goods to produce, how to produce, and for whom to produce (Begg et al, 2005) The matter is how to respond to the questions or what economic indicators support us to make the choices Competitiveness is a central concept and measure in stimulating policy and business strategy discussions by policymakers, farmers, enterprises, and researchers Researchers

and policy makers are interested in which sectors can contribute the most to nation’s economic growth and they often turn to the concept of competitiveness as a basis for analysis Enterprises and farmers are interested in which businesses make the most profit for them and they also refer to competitiveness as a key indicator (Latruffe, 2010) The researchers are interested in which sectors can contribute the most to nation’s economic growth and they often turn to the concept of competitiveness as a basis for analysis The enterprises and the farmers are interested in which businesses make the most profit for them and they also refer to competitiveness as a key indicator

Competitiveness is a relatively broad subject and concept which is related to various economic theories and empirical literature Though there is much agreement on the economic and social importance of competitiveness indicators to make choice decisions,

it is less clear what exactly competitiveness is and what its most important determinants

of competitiveness are (Fischer and Schornberg, 2007; Martin, 2003) The concept is widely researched from the classical economic theory and employed in both theoretical and empirical studies from different points of view but there is little agreement on its definition (Bojnec and Ferto, 2009) There are various frameworks to assess the competitiveness at various levels with different research objectives according to six main disciplines as follows: (i) the economic and production indicators of competitiveness; (ii) the trade performance indices; (iii) the determinants of competitiveness; (iv) the multidimensional frameworks; (v) the value chain performance approaches; and (vi) the benchmarking In this thesis, the authors will employ the first and second approaches to achieve the research objectives (the authors’ review, 2017) The main measures for agricultural competitiveness in economic literature are the economic indicators and the trade indices These competitiveness approaches indicate the different economic literature and provide diverse policy implications It is, therefore, necessary to compare and test the consistency between these approaches

For decades, Vietnam and the ASEAN countries have paid more attention to the agricultural export strategies based on the competitive advantage to utilize the scare natural and social resources and take advantages of the regional and global integration

to maximize the economic and social welfare The establishment of the ASEAN Economic Community (AEC) in 2015 with objectives of a single market, a competitive economic region, equitable economic development, and integration into the global economy offers both opportunities and challenges to the member countries The AEC involves liberalizing trade in goods and services; protecting and promoting investment; narrowing down the social and economic development gap; and enhancing the free flow

of skilled labor and freer flow of capital Moreover, the ASEAN has signed free trade agreements with dialogue partner countries such as Australia & New Zealand, China, India, Japan, and Republic of Korea with different objectives, namely, strengthening ASEAN’s trade and economic relationship with the partners, improving the economic competitiveness of ASEAN countries as well as increasing the living standard, enhancing economic integration of ASEAN countries, and creating of a more enormous free market The RCEP is proposed for a free trade agreement between these partners with taking into account the EAFTA and the CEPEA The AEC offers the opportunities

in the form of a huge market of US$2.6 trillion and over 622 million people in 2014 The ASEAN area is collectively the third largest economy in Asia and the seventh largest economy in the world (ASEAN, 2017) Petri et al (2012) believe that the ASEAN economic integration could gain a similar result to those coming from the European market, amounting to 5.3 percent of the region’s income The benefits could

be doubled if regional integration also leads to new free trade agreements with key external partners and the whole region will share in these benefits

However, there are various challenges to the AEC member countries and obstacles

to the AEC progress Although the ASEAN countries are diverse in terms of social, economic, and political structures, they are in a similar geographical area and natural

conditions (Siah et al., 2009) and these issues may cause the countries to become substitutable or competitive for each other in agricultural products The economic integration among the AEC members encounters the internal obstacles consisting of the import substitution policies of industrialization; the small extent of intra-ASEAN trade; and the wide differences in economic size, development level, and industrial competence giving rise to divergent perceptions of benefits and costs (Chia, 2013) The ASEAN countries face the external challenges from strong globalization, international competition, the rapid economic and trade growth in India and China, and the proliferation of preferential trade agreements (Chia, 2013; Ravenhill, 2008)

In general, Vietnam has strong comparative advantages and exports the traditional, labor-intensive, and land-intensive agricultural sectors such as rice, coffee, rubber, black pepper, fisher, fruit and vegetables based on the natural conditions and cheap labor resources The process of agricultural production development and international trade specialization has occurred without a central and long-term plan and strategy based on the scientific background and research This process results in various issues to Vietnam such as: (i) the country’s agricultural sector is losing the comparative advantages on the world markets due to the increasing input cost, low product quality, and negative impact

on the natural environment; (ii) farmers and producers obtain lower profitability and income due to low export price, oversupply production, low brand values, low value-added, and low productivity; (iii) competitions become more and more fierce on both local and global markets when competing countries (such as Thailand, Cambodia) focus

on the high-value sectors with high-quality standards and valuable brand names; (iv) natural disasters, negative impacts on environments, and climate changes also make the agricultural productions become riskier, more unstable and less profitable

In addition, crop choice for specific agro-ecological regions basing on their competitive advantages is a key issue of Vietnam’s agricultural sector For instance, the Mekong Delta is the main agricultural area of Vietnam with the strategic sectors of rice,

fruits, and vegetables Rice, however, become less profitable and sustainable due to input cost increase, oversupply, and environmental food-prints for both private and social actors These issues compel farmers, enterprises, and policymakers to urgently identify and choose the best crops in the same arable lands with the similar natural and social conditions As the result, it is essential for Vietnam to identify the competitiveness of agricultural sector to re-structure the agricultural production systems and trade patterns which may generate the higher value-added and profitability for producers and also properly adapt to climate changes and natural resource degradations

1.2 Research gap identification

Vietnam’s agricultural sector plays the essential role in the economy, the sector has been encountering various problems, and competitiveness is a key pillar in economic theory However, the studies which comprehensively investigate Vietnam’s agricultural competitiveness at the country - sector level and/or commodity level with the comparisons to the ASEAN countries by various approaches seem to be relatively limited Moreover, the application of different approaches may give different meanings

of agricultural competitiveness and lead to the differences in the results

As the authors’ review, there are six main approaches measuring competitiveness such as the economic indicators, the trade performance indices, the determinants of competitiveness, the multidimensional frameworks, the value chain performance and the benchmarking The trade performance indices and economic indicators are the most popular and efficient measures in agricultural research

Many trade performance indices have been proposed such as the RCA by Balassa (1965), the RTA by Vollrath (1991), the LFI by Lafay (1992), the RSCA by Dalum et

al (1998), and the NRCA by Yu et al (2009) In Vietnam, the studies mainly employ the trade index of the RCA to measure the comparative advantages of one agricultural commodity (Nguyen and Sumalde, 2008) or of all commodities in general (Le, 2010; Nguyen, 2011; and Vixathep, 2013) There is no research utilizing the trade

performance indices such as the RCA, the RTA, and the NRCA to assess the static and dynamics competitiveness of Vietnam Especially, there is no study testing the consistency of the trade performance indices in the case of Vietnam Therefore, there is

an empirical and theoretical research gap to assess the static and dynamics agricultural competitiveness of Vietnam over time by various trade performance indices with the consistency between these indices by cross-sections

In the international scope, measuring and comparing the agricultural trade competitiveness among various countries in a region or a group is significantly interesting to the scholars by these various trade indices (Banterle and Carraresi, 2007; Qineti et al., 2008; Sanidas and Shin, 2010; Svatos et al., 2010; Bojnec and Ferto 2016) These studies mainly focus on assessing the commodity structure of agrarian trades of countries on the world market or a common regional market Scholars, moreover, may analyze the agricultural complementarity, similarity, and/or competition among different countries on the world market or a common regional market by using the agrarian trade data (Vaillant and Ons, 2002; Zheng and Qi, 2007; Benedictis and Tajoli, 2008; Andreosso-O'Callaghan, 2009; Jayawickrama and Thangavelu, 2010; Shuai and Wang, 2011) However, scholars have not measured and compared the static and dynamics agricultural competitiveness of the ASEAN countries over time by various trade performance indices with the consistency test between these indices by cross-countries Especially, the assessment of the agricultural complementarity, similarity, and/or competition between the ASEAN countries is still a significant research gap so far Some scholar may study the intra-industry trade, intra-regional trade, and bilateral trade between these countries (Sharma and Chua, 2000; Ismail and Abdullah, 2013; Nguyen

et al., 2017; Nguyen and Vo, 2017)

The economic indicators consist of the profitability, the value-added, the effectiveness, the efficiency, and the productivity at both market and social prices The economic indicators are meaningful and essential tools to make crop production choices

between alternative agricultural production systems by farmers and enterprises Studies

in Vietnam usually measure the economic indicators of the agricultural productions at market prices to identify whether the agricultural products are competitive or profitable (Vo and Nguyen, 2011; Tran et al., 2013; Tran and Pham, 2014; Vo et al., 2015; Nguyen, 2015; Truong et al., 2015; Hoang, 2015; Nguyen and Nguyen, 2018) Some scholars measure the competitiveness or profitability of the agricultural product at social prices by the DRC indicator (Nguyen and Sumalde, 2006; Nguyen 2009; Nguyen and Mai, 2012; Nguyen and Phan, 2012) The studies, however, explain the competitive advantage as the measurement by comparing the domestic resource cost valued at market price (DRC) with the official exchange rate (OER) They convert the market price DRCs into foreign currency value to identify whether an agricultural production activity is competitive Moreover, none of these researches assess the comparative advantage changes when the input and market conditions change This approach seems not to strictly follow the guide of the original method of the PAM model by Monke and Pearson (1989) Nguyen and Heidhues (2004) employ the PAM model for assessing the comparative advantage of Vietnam’s rice sector under different liberalisation scenarios with the sensitive analysis based on the various scenarios This paper, however, focuses

on rice production only It, therefore, fails to compare the comparative advantages of the different agricultural productions

In the world scope, there are several studies of agricultural competitiveness by the economic indicators in the PAM model (Yao, 1997a, 1997b; Morrison and Balcombe, 2002; Kydd et al., 1997; Gorton et al., 2006; Liefert et al., 2011; Bernal et al., 2012; Alves et al., 2017) with sensitive analysis based on the changes of input conditions These studies, however, focus on measuring the competitiveness of an agricultural product or the general agricultural sector Only Yao (1997a) measures and compares the comparative advantages of three competitive crops such as rice, soybean, and mungbean These crops, however, seem to be relatively similar in production and

economic result Yao (1997a) uses the economic indicators in the PAM model only without theoretically comparing with other approach of competitiveness measurement There is no scholar who employs and compares the different approaches of investigating the agricultural competitiveness As the result, it is a practical and empirical research gap to measure and compare the competing agricultural production systems of rice, coconut, and pomelo There is also a theoretical research gap to compare the economic and trade approaches of measuring the agricultural competitiveness

1.3 Research objectives and questions

In general, this dissertation aims to provide the comprehensive and systematic overview of competitiveness literature and to investigate the agricultural competitiveness of Vietnam at various levels and in diverse scopes by different approaches under the country’s progress of economic re-structure, agricultural production system innovation, and global market integration In particular, the research objectives of this dissertation are to:

First, assess the static and dynamic agricultural competitiveness of Vietnam The

study tries to understand the relative market shares of Vietnam’s agricultural commodity groups on the world markets and identifies whether and how they are competitive, the degrees of competitiveness by various trade performance indices Vietnam has been experienced the economic innovation and globalization, thus the dissertation has the target to understand the general pattern of Vietnam’s agricultural competitiveness, convergent or divergent, and explain how the competitiveness indicators of these agricultural commodity groups change over time The study also desires to know how these trade performance indices are consistent in measuring, ranking and determining the competitiveness in case of Vietnam’s agricultural sectors by cross-sections

Second, investigate and compare the agricultural trade patterns Vietnam in

comparison to the ASEAN countries The authors attempt to understand the positions and the advantages of Vietnam’s agricultural sector in the ASEAN region by

investigating the agricultural competitiveness of other ASEAN countries, comparing the agricultural competitiveness degrees, and ranking their positions over time Especially, the dissertation identifies whether the ASEAN countries are complementary or substitutable in agricultural export and import on the world markets over the regional and global integration process The research, moreover, tests how these trade indices are consistent in measuring, ranking and determining the competitiveness in case of ASEAN countries’ agricultural sectors by cross-countries

Third, evaluate the agricultural comparative advantages of the alternative

agricultural production systems of rice, coconut, and pomelo in the same ecological conditions through the case study in Ben Tre province, Mekong Delta by the economic and production approach Ben Tre is selected due to its representative for Mekong Delta, where rice and other crops as vegetables, coconut, and fruit trees may be grown in large scales Particularly, the dissertation measures and contrasts the economic indicators of these sectors at market prices and social prices of inputs and outputs The study, moreover, analyzes the sensitivities of the economic indicators according to the changes in climate, productivity, market prices, and exchange

agro-To comparing various approaches of competitiveness measurements, the study also assesses the comparative advantages of the sectors of rice, coconuts and pomelo by the trade performance indices Based on the results of both empirical studies by the economic indicators and trade performance indices, the dissertation will:

Fourth, empirically analyze the consistency and theoretically compare the

differences and implications of these competitiveness trade indices and economic indicators Though both the trade and economic frameworks are useful to measure the competitiveness of agriculture, they indicate the different practical and theoretical meaning and aspects The authors would aspire to understand, test and illustrate how and why these approaches are different and what the indicators can provide the implications and suggestions for farmers, agribusiness enterprises, and policymakers

The following research questions should be responded so that the research objectives

of this these previously can be completely and originally achieved

(1) The first research objective requires the main research question as follows: Does Vietnam obtain the comparative advantages in agriculture on the world agricultural markets over time? Other supporting research questions are also helpful for the first research objective such as: How do these competitiveness indicators change over the period of Vietnam’s economic re-structure, agricultural production system innovation, and global integration? Whether the trade indices are consistent to measure, rank, and determine the agricultural competitiveness in case of Vietnam by cross-sections?

(2) The second research objective can be obtained by responding the following main research question: How competitive are the ASEAN countries in agricultural sectors on the world markets and whether these countries are complementary or substitutable in agricultural export and import on the world markets? Moreover, other supporting research questions are also meaningful for the second research objective such as: How is Vietnam’s agriculture competitive in comparison with the ASEAN countries? Whether the trade indices are consistent to measure, rank, and determine the agricultural competitiveness in case of the ASEAN countries by cross-countries?

(3) The third research objective should be determined by the research question that which the crops of rice, coconut, and pomelo in Ben Tre obtain stronger comparative advantages and should farmers and agribusiness enterprises cultivate and invest under the conditions of the unstable agricultural markets, the changing climate, degrading natural resources, and increasing competition? In other words, how competitive the crop production systems of rice, coconut, and pomelo are And,

(4) The fourth research objective will be obtained by the research question that whether, how and why trade performance indices and economic indicators are consistent and/or different in measuring the agricultural competitiveness and providing practical and theoretical implications?

1.4 Brief of research methodology, scope, and data

In economic and business literature, there are various frameworks to measure the agricultural competitiveness at different levels in diverse scopes based on six main approaches such as (1) the trade performance indices; (2); the economic and production indicators, (3) the determinants of competitiveness; (4) the multidimensional frameworks; (5) the value chain performance approaches; and (6) the benchmarking In this dissertation, the authors will employ the trade performance and the economic and production approaches to achieve the research objectives and respond the research questions Moreover, the additional methods will be used to for other research objectives and questions The methodologies can be shortly expressed as follows with detailed presentations in Chapter 3:

First, the dissertation employs the trade performance indices to measure the static

agricultural competitiveness of Vietnam by cross-sections The trade indices consist of the Revealed Comparative Advantage (RCA) of Balassa (1965), the Relative Trade Advantage (RTA) of Vollrath (1991), and the Normalized Revealed Comparative Advantage (NRCA) of Yu et al (2009) After that, the dynamics and changes of the agricultural competitiveness indicators are analyzed in three ways such as OLS regression, Markov matrices, and trend analysis The consistency of these trade indices

in measuring, ranking, and determining the agricultural competitiveness in case of Vietnam by cross-sections are tested by statistical tools based on the approach of Ballance et al (1987) and Seyoum (2007)

Second, these trade performance indices are also employed to measure and rank the

agricultural competitiveness of the ASEAN countries by cross-countries The dynamics and changes of the agricultural competitiveness indicators of these countries are also analyzed in similar ways In addition, the study employs the trade complementarity index (TCI) of Drysdale (1969) and the Export Similarity Index (SI) of Finger and Kreinin (1979), and Spearman’s rank correlation coefficients (SC), following

Jayawickrama and Thangavelu (2010), to identify whether the ASEAN countries are complementary or substitutable (competing) in agricultural export and import on the world agricultural markets These statistical tools are also used to test the consistency of these trade performance indices as cardinal, ordinal and dichotomous measures in case

of ASEAN countries by cross-countries

Third, the economic and production approach should be utilized to evaluate the

comparative advantage of alternative crop production systems such as rice, coconut, and pomelo Particularly, the policy analysis matrix (PAM) indicators are used to measure the cost, the benefit, the profitability at both market and social prices The PAM indicators include the Private profitability (PP), Private cost ratio (PCR), Social profitability (SP), Domestic resource cost (DRC), Social cost-benefit (SCB), Nominal Protection Coefficient (NPC), Effective Protection Coefficient (EPC), Profitability Coefficient (PC), Subsidy Ratio to Producers (SRP) Moreover, the authors measure the sensitivity of the PAM indicators by three scenarios: (i) Climate change; (ii) Water and land charges; and (iii) The parameters of the PAM variables and elements such as output

prices, inputs prices, productivity, and the real effective exchange rate Finally, based on

the research results of trade performance indices and the economic indicators, this study will theoretically discuss and compare the consistency and the difference of these approaches in empirically measuring the agricultural competitiveness and providing practical and theoretical implications

The dissertation is fulfilled over the period 2013-2017 with the focus on agricultural commodities (commodity is defined as the sector in this dissertation) in Vietnam, ASEAN countries, and Ben Tre province The core scope of this dissertation is Vietnam’s agriculture with 61 commodity groups The extended scope is the ASEAN countries’ agricultural sectors for comparing and ranking Vietnam’s agricultural competitiveness positions The narrowed scope is Ben Tre province as a case study of the PAM approach for three alternative and competing crops of rice, coconut, and

pomelo on the same arable land Rice is the essential food crop, coconut is the important material crop, and pomelo is the relatively potential crop The PAM approach requires relatively numerous data with the average values for all observers and these data of Vietnam are not available in secondary sources Moreover, Ben Tre has the strongest advantage in coconut and pomelo and relatively strong advantage in rice Thus, Ben Tre should be the most adequate and feasible case for this research purpose, even though the province is not the best representative for rice in the Mekong Delta

For the first and the second goals, the authors use the secondary data from the United Nations Comtrade (UN Comtrade) with 61 agricultural commodity groups at 3-digits in SITC Rev 3 over the period 1997 – 2014 for Vietnam and 1997 – 2015 for ASEAN countries The dissertation also uses the secondary data from the International Trade Center (ITC), the Food and Agriculture Organization (FAO), the World Bank (WB), the General Statistics Office (GSO) of Vietnam, and the General Department of Vietnam Customs (GDVC) The primary data from the fieldwork surveys for three agricultural production systems in the case of Ben Tre province and related locations in 2017 are employed for the third and fourth objectives The actors in the value chains will be interviewed such as farmers, middle traders, processors, wholesalers, and retailers and the supporting actors also such as governments, banks, logistics companies, experts, and others The secondary data for these objectives is also obtained from the UN Comtrade, the ITC, the FAO, the GSO of Vietnam, and the GDVC

1.5 Expected significance and contribution

The dissertation is the initial attempt to measure the static comparative advantage of all agricultural items with 61 commodity groups at 3-digit level in the SITC Rev 3 over the period 1997-2014 by various trade performance indices of the RCA, the RTA, and the NRCA The result will provide the overview picture of Vietnam’s agricultural comparative advantages and the competitiveness rankings of the agricultural commodity groups which are the key and strategic indicators for policymakers, agribusiness

enterprises, and farmers to make agricultural policies and business decisions The dissertation is the first research trying to explain how does Vietnam’s agricultural comparative advantage patterns change over time at the different stages of its global integration and predicts the trends in the future by employing different approaches of OLS regression, Markov matrices, and trend analysis The study, moreover, provides the empirical tests of the various trade performance indices and dynamics analysis models

in the case of Vietnam based on the cross-sections comparison Finally, the research provides the theoretical analysis of the consistency between these trade performance indices by the cross-sections rankings in case of Vietnam

Vietnam, moreover, has been strongly and deeply integrated into the regional and global market and economy Therefore, it is important to understand the rankings and competitiveness of Vietnam’s agriculture under the analysis and comparison with the ASEAN countries This dissertation is the novel research which investigates the agricultural competitiveness patterns, agricultural competitiveness rankings, and agricultural competitiveness dynamics of the ASEAN countries with 61 commodity groups at 3-digit level in the SITC Rev 3 over the period 1997-2015 by various trade performance indices Especially, the dissertation tries to identify whether the ASEAN countries complementary or substitutable on the world agricultural market over the regional and global integration process by employing the trade complementarity and similarity indices and Spearman’s rank correlation coefficients for competitiveness indices These findings provide the vital complementarity and competitiveness indicators for organizational business strategies, national development and trade policies, and regional integration programs In addition, the research expands the empirical studies of the complementarity and competitiveness indices in the ASEAN context based on the cross-countries comparison The study tests the theoretical analysis

of the consistency between these trade indices by the cross-sections rankings in the case study of the ASEAN countries

The trade indices are able to be successful to assess the agricultural performance competitiveness at the country aggregation level and the export aspect They, however, cannot explain why the country obtains the relative market shares on the world markets and fail to indicate the welfare and benefits aspects by which the farmers, agribusiness enterprises, and the agricultural governments make crop choice decisions, development strategies, and agricultural policies It is, moreover, significant and novel to compare the different approaches of measuring competitiveness, the trade performance indices and the economic indicators This thesis is the first and new effort to measure and compare the competitiveness of competing crops of rice, coconut, and pomelo in the same arable lands of Ben Tre province by the PAM indicators The research, moreover, analyzes the sensitivities of the competitiveness indicators according to the climate, market, and policy changes Especially, the thesis measures the competitiveness of rice, coconut, and pomelo by trade performance indices The result is used to theoretically compare and illustrate the difference and the implication of trade indices and economic indicators From both practical and empirical aspects, it is essential to investigate the static and dynamic agricultural competitiveness of Vietnam over time Especially, it will more significant to understand Vietnam’ agricultural competitiveness in comparison and ranking with other ASEAN countries under its regional and global integration Moreover, it is completely meaningful to understand the welfare and benefit view of competitiveness of the competing crops in the same arable land From academic and empirical aspect, it is novel to theoretically compare and illustrate the difference and implication of trade indices and economic indicators

1.6 The structure and outline of the dissertation

The dissertation consists of seven chapters This Chapter introduces the study by

highlighting the overview of the agricultural sector of Vietnam and the competitiveness literature, identifying the research gap and significance, presenting the research objectives and questions, and explaining shortly research methodology, scope, and data

Chapter 2 (literature review) provides the comprehensive understanding of the

competitiveness literature Chapter 3 (Methodology and data) explain the details of

indicators, frameworks, methods, and the data employed in this dissertation Chapter 4

(Vietnam’s agricultural trade competitiveness: The cross-sections analysis - Objective

1) is the first result of the dissertation which presents the empirical research of

measuring and ranking the static and dynamic agricultural comparative advantage of

Vietnam and test the consistency of these indices by sector-ranking Chapter 5 (The

ASEAN countries’ agricultural trade pattern: The cross-countries analysis - Objective

2) investigates and compares the agricultural competitiveness patterns of ASEAN

countries and test the consistency of the trade indices by country-ranking Chapter 6

(The competitiveness of the alternative agricultural crops in Ben Tre – Objectives 3 and

4) measures the competitiveness of alternative agricultural production systems of rice,

coconut and pomelo in Ben Tre province by the PAM indicators and compare the

various competitiveness approaches Chapter 7 (Conclusion and Implications) goes to

conclusions and gives some implications that are based on experiences in the world, the

circumstances in Vietnam, and the results of this dissertation This chapter, moreover,

clarifies its limitations and suggests some new research ideas in the future

CHAPTER 2: LITERATURE REVIEW

The result of the literature review shows that competitiveness is relatively large, general and multi-perspectives concept and theory in various thought schools Thus, scholars should specifically and effectively define the concept based on the research objectives and conditions The review also indicates that there are various approaches to measure the competitiveness according to six main disciplines such as: (i) the economic and production indicators; (ii) the trade performance indices; (iii) the determinants of competitiveness; (iv) the multidimensional frameworks; (v) the value chain performance approaches; and (vi) the benchmarking The trade performance indices and economic indicators are the most popular and efficient measures in agricultural research

2.1 Definition of competitiveness

In the economic literature, there are various definitions of competitiveness which are identified and modified appropriately for the research objectives and conditions However, they are generally incompatible with each other in some cases and are not universally accepted The main debates and discussion of competitiveness definition are

as follows: (i) the distinction between comparative advantage and competitive advantage or competitiveness; (ii) the levels, scopes, and subjects of the competitiveness: economics and business; micro and macro; supranational union, nation, region or province, value chain, industry or sector, commodity, and individual firm or farm; and the nature of competitiveness as performance, process, potential, and determinant; and (iii) the senses, objectives, perspectives of the competitiveness concept and definition

In general, the concepts of comparative advantage and competitive advantage are usually employed indistinguishably and interchangeably They are, however, sometimes used in parallel for indicating different concepts and meanings The main distinction between the concepts is that the competitive advantage concept measures a country’s profitability in one sector at market prices that may be distorted by policy or other

influences, while the comparative advantage reflects the profitability at shadow prices that reflect the social value of costs and production without these distortions The distinction is, however, not well established in the literature (USAID, 1999; Siggel and Ssemogerere, 2004) The studies that follow the distinction employ policy analysis matrix method to assess the comparative advantage of a country in an activity Moreover, comparative advantage is intended to compare countries’ industrial structures rather than comparing the competitiveness of the industries directly In other words, comparative advantage represents the efficient allocation of resources at the national level whilst competitive advantage indicates the commercial performance of individual firms (Kannapiran and Fleming, 1999) According to Frohberg and Hartman (1997), the concept of competitive advantage is closely linked to the comparative advantage and the only difference between the two concepts is that the competitive advantage includes market distortions, whereas the comparative advantage does not

The second debate on competitiveness is whether it is a national-level or firm-level issue, what the levels and scopes of competitiveness are Sharples (1990) argues that comparative advantage is a theoretical concept that explains the trade and optimal welfare in an undistorted world while competitive advantage relates to the observable practices If they are able to survive and increase market share, they have become more competitive and vice versa It is notable that an increase in competitiveness of a firm or

an industry resulting from government support may not necessarily imply an increase in national welfare Thus, competitiveness does not have a definition in economic theory, Sharples concludes According to Krugman (1994), competitiveness is a firm-level issue and firms rather than nations compete for exports on the world market On the other hand, Lall (2001) views competitiveness as a national matter and Garelli (2002) stresses that competition takes place between nations rather than firms These scholars further explain that not only goods and services exported by firms but also the abilities of nations to develop a well-functioning education system and to improve technological

capabilities are vital for competitiveness Thus, competitiveness is to evaluate how nations and enterprises manage their full competencies to achieve prosperity or profit The scholars and the empirical studies generally agree that the concept of competitiveness is employed in both economic and business research at various levels depending on the research objectives, scopes, and subjects Buckley et al (1998) generally review that competitiveness is measured at the levels of country, industry, firm, and product Hatzichronologou (1996) explains the levels of competitiveness as the ability of companies, industries, regions, nations, and supranational regions Coy (2006), however, views the nation and the region competitiveness as macro level and industry, firm, commodity competitiveness as micro level He, therefore, divides competitiveness concept into macro- and micro-levels with the meta-level linking social relations to the macro-level and the meso-level linking macro- and micro-levels Coy concludes that the meso-level suggests policies to enhance the competitiveness of certain sectors at the micro-level, given a stable macroeconomic environment Moreover, competitiveness concept, in the scope of business and at micro level, should

be explained and measured with the relations among various subjects or entities which horizontally and vertically link and cooperate together to compete and achieve market shares in a value chain which is particularly for the studies of agricultural industry competitiveness (Aramyan et al 2007; Gorton et al 2013) The competitiveness is also indicated in the different natures as the resources and results Buckley et al (1998) identify three natures of competitiveness such as potential, process, and performance The most important and complicated discussion of competitiveness is to define the senses, objectives, and perspectives of the competitiveness concept Oxford Advanced Learner’s Dictionary 8th edition defines competitiveness as derivatives of “competitive” which means the following: (i) used to describe a situation in which people and organizations compete against each other; (ii) as good as or better than others; (iii) (of a person) trying very hard to be better than others The definition is comprehensive and

dynamic with the meaning of competing, being better, and the effort or process of competing and being better at both individual and organizational levels The term of competitiveness originated from the Classical Latin word “petere” implying to seek, attack, aim at, desire, and the Latin prefix “con-” indicating together (Siudek and Zawojska, 2015) The classical and the neo-classical scholars generally synonymize competitiveness concept as the comparative advantage of a nation

The concept of competitiveness is stated and explained variously in modern economics Freebairn (1987) defines competitiveness as the ability to supply goods and services at the time, place and form sought by overseas buyers at prices as good as or better than those of other suppliers while earning at least the opportunity cost of returns

on resources employed In the medium and long term, competitiveness is the capacity of

a country to sustain and expand its share of international markets and at the same time to improve its people's standard of living These require the increase of productivity and therefore the incorporation of technological advances (Fajnzylber, 1988) Porter (1990b) explains that the only meaningful concept of competitiveness at the national level is productivity The principal goal of a nation is to produce a high and rising standard of living for its citizens The ability to do so depends on the productivity with which a nation’s labor and capital are employed Productivity is the value of the output produced

by a unit of labor or capital

Master (1995) defines comparative advantage to be an activity’s marginal contribution to national income (social profit), while competitiveness is the marginal contribution to the net income of the owners (private profit) He explains that an activity creating positive social profit is said to be economically efficient and to have a comparative advantage against other activities The Organization for Economic Co-operation and Development (OECD) defines competitiveness as “the ability of the companies, industries, regions, nations, and supranational regions to generate while being and remaining exposed to international competition, relatively high and rising

income and factor employment levels on a sustainable basis (Hatzichronologou, 1996) The European Commission (EU, 2003) suggests the definition that competitiveness is

“the ability of an economy to provide its population with high rising standards of living and high level of employment for all those willing to work, on a sustainable basis” A more specific definition in international trade, the United National Conference on Trade and Development (UNCTAD) describes the international competitiveness as “from meaning simply higher exports to diversifying the export basket, sustaining higher rates

of export growth over time, upgrading the technological and skill content of export activity, to expanding the base of domestic companies able to compete globally” (UNCTAD, 2002) Aiginger (2006) clarifies competitiveness as the ability of a country

or location to create welfare, maintaining that a comprehensive evaluation contains an output and a process evaluation, claiming that the output evaluation is closely related to

a welfare assessment, and process evaluation is related to the analysis of production and technology functions Ozcelik (2012), based on the international trade center (ITC, 2007), interprets competitiveness as “the advantage a country has in exporting a certain product over other countries”

According to Cai et al (2009), comparative advantage can be analyzed from two different perspectives: static and dynamic In a static sense, the concept is a term employed to compare entities’ current optimal specialization and trade patterns In a dynamic sense, it is used to compare entities’ future optimal specialization and trade patterns by recognizing that an entity’s relative ability to competitively produce certain goods can be improved over time, in response to a variety of endogenous and exogenous factors such as changes in factor endowments and their opportunity costs, changes in production and marketing technologies, and changes in world input and output prices

In conclusion, the thesis does not distinguish the concepts of competitiveness, competitive advantage, and comparative advantage Competitiveness is defined as the performance of an entity (a country, a sector, or a firm) to obtain the higher relative

market shares on the global markets based on the relatively lower domestic costs to maximize and increase the social welfare both at present and in the future The authors would accept and harmonize the differences of senses, objectives, and perspectives in the definitions of competitiveness among scholars and schools of thought The next section in this chapter will focus on reviewing the evolution of competitiveness theory

2.2 Evolution of competitiveness theory

The concept of competitiveness in traditional economic theory is synonymous with comparative advantage The term of nation's international competitiveness in classical theories is based on the concepts of absolute advantage and comparative advantage proposed by Smith (1776) and Ricardo (1817) Cost, productivity, efficiency, and specialization are the fundamentals of these concepts Smith (1776) explains the wealth

of a nation based on absolute advantage In particular, absolute advantage means the export of the goods with lower domestic cost to partner countries and the import of goods with higher domestic cost This is the initial theory and basic indicator of a nation’s competitiveness Production requires the use of society’s element of value, namely human labor Smith notes that some countries, due to the workers’ skills or the quality of natural resources, could produce the same commodities as others with fewer labor hours These countries have absolute advantages in the products and they should specialize in producing and supplying the goods to the world markets Smith confirms that access to larger markets permits faster productivity growths and higher income levels, primarily because it permits more specialization and competition However, Smith’s economic and competitiveness theory fails to explain the international trade of the countries without the absolute advantage in any products

Ricardo (1817) expands the international trade theory and develops a theory of comparative advantage based on the absolute advantage concept The comparative advantage is broader than Smith’s theory and successfully deals with the drawback of the absolute advantage theory Similar to the absolute advantage, the comparative

advantage measures a nation’s competitiveness by the relatively lower production cost which is assumed to be unit labor cost Ricardo explains the benefit from international trade for countries if they export goods or service when producing at relatively lower labor costs and import goods or service that are relatively more expensive due to higher labor costs The theory of comparative advantage is useful to explain the reasons why international trade may happen and how international trade increases the welfare of the countries The Ricardian theory, however, has limitations such as (i) it predicts an extreme degree of specialization, but in practice countries produce not one but many products; (ii) the theory explains trade based on differences in productivity (or cost) levels between countries, but does not explain why these differences exist; (iii) the production costs consist of various input factors apart from labor cost; (iv) it fails to explain how the gains from trade are divided among trading countries; and (v) the model does not explain the roles of demand in the international trade (Cho and Moon, 2002; Esterhuizen, 2006) In spite of these limitations, scholars have developed the empirical models to measure the competitiveness of a country based on the international economic theories of Smith and Ricardo such as the revealed comparative advantage index of Balassa (1965), the intra-industry trade of Grubel and Lloyd (1975), the relative export advantage and the relative trade advantage of Vollrath (1991), the Lafay index of the Lafay (1992), the trade competitiveness (Greenaway and Milner, 1993), the revealed symmetric comparative advantage index of Dalum et al (1998), and the normalized revealed comparative advantage of Yu et al (2009

Mill (1848) endorses the free international trade based on the law of comparative advantage and remarks that some trade and economic activities may be profitable only if the government intervenes and protects them over the period of learning-by-doing He argues that the trade restrictions against comparative advantage generate transfers to a few beneficiaries at the expense of other market participants Mill continues the actual barter terms of trade depend not only on domestic costs but also on the pattern of