Does afta create More Trade for Thailand? An Investigation of Some Key Trade Indicators

§

¸¹

·

¨©

§

¦

¦

w

iw

k

ik

X

X

X

X

/

 where 

ik

X

 is the value of 

sector  i export of country k, and 

iw

X

 is the total value of the world exports of 

product i. A comparative advantage is “revealed” if the RCA > 1. If the RCA < 1, 

however, the country is said to have a comparative disadvantage in the commodity i. 

13   RCA rank correlation reflects the comparative advantage in trade patterns. Regard-

ing the standard trade model, the Heckscher-Ohlin theorem (H-O) states that for a 

country that has a comparative advantage in the production of goods that involve 

intensive but abundant labor, a relatively cheaper price should result. Inter-industry 

trade between two different countries (in terms of their resource abundance) results 

in more trade, which therefore increases a country’s welfare. On the other hand, a 

decline in trade between countries with similar trade structures reduces both coun-

tries’ welfare. 

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64

Piriya Pholphirul

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Thailand and Malaysia. The trade substitution between Thailand and 

Singapore is only 2.3 per cent, however. Moreover, the negative value of 

RCA rank correlation implies a degree of complementary trade. There is a 

complementary pattern between Thailand and other non-ASEAN countries 

such as the EU (20 per cent), with Australia (17 per cent), with Great Britain 

(30 per cent), and with the U.S. (9 per cent).  

The RCA rank correlation can be estimated in order to compare the ex-

port structure between Thailand and each ASEAN country in terms of its 

industry basis. The RCA rank correlation indices on an industry basis are 

estimated based on International Standard Industrial Classification (ISIC) 

product codes. These estimated coefficients can be used to interpret the 

complementarities/ substitute competitiveness structure. Using the concept 

of comparative advantage, the negative value of the estimated index explains 

trade complementarities (similarity) between two countries, which thus im-

ply higher gains from trade. The positive value of the estimated index, on 

the other hand, explains substitute trade between these countries, which 

implies lower gains from trade between Thailand and other ASEAN mem-

ber countries. The result shows that the trade structures between the pro-

spective countries and other AFTA states are rather similar considering all 

of the positive values of the RCA rank correlation.  

For agricultural products (ISIC-1), the correlation between Thailand 

and other ASEAN countries such as Indonesia, the Philippines, and Malay-

sia was higher than for other nations, including China. The correlation with 

the EU and U.S. was low. Thailand had a high correlation with ASEAN, 

China, Japan, and Korea in the areas of food processing and textiles. There 

are therefore a number of potential product groups that have a significant 

negative coefficient value, which can be used to determine the dissimilarity 

of the trade structure between Thailand and other non-ASEAN countries. 

These groups can be considered for potential trade with the U.S. in areas 

like ISIC-1 and ISIC-33 to 36, products from ISIC-35 could be traded with 

China, and products from ISIC-32 and ISIC-39 could be traded with Japan. 

Bilateral or regional trade agreements between Thailand and these non-

ASEAN countries ought to help to create a higher trade volume with these 

countries. 

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Does AFTA Create More Trade for Thailand? 

65

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Figure 1:   Revealed Comparative Advantage (RCA) Rank Correlation 

Source:   Author’s own calculation. Calculated from PC-TAS, UN.  

Share of Co

untry I

m

port from Thailan

d 

(p

er

 cent) 

RCA rank correlation

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66

Piriya Pholphirul

„„„

Table 4:  

RCA Rank Correlation Coefficient for Thailand and Other 

Selected Countries