Academic Journal of Social Sciences ISSN 2521-0149

Vol. 4 Issue 3 (July- September 2020) PP 700-710 ISSN 2519-7983

COMPARATIVE ADVANTAGE AND THE PRODUCT MAPPING OF EXPORTING

SECTOR OFMINERALS IN PAKISTAN

Muhammad Shahid Maqbool1

Muhammad Atiq-ur-Rehman2
Allah Ditta3
Abstract: The economic policy regarding imports and exports containsadvantages and as well
as disadvantages for each state. In Pakistan, however, this policy of import and export
economyoften led to an unsymmetrical export portfolio resulting in the trade balance deficit.
This study aims at measuring the export competitiveness of minerals in Pakistan, and the data
were obtained from the international trade centre (ITC). Hence, a set of revealed comparative
advantage (RCA) indices were employed to examine the comparative and competitive
advantage of mineral sector of Pakistan for the peiod2003-2018. The results show that Pakistan
had a comparative advantage in the minerals exporting sector during 2004 to 2018, while
comparative disadvantage in 2003. Further, the net export index illustrates that Pakistan was a
net-importer of this sector from 2003-04, whereas net-exporter during 2005-18.
Keywords; Comparative advantage, revealed comparative advantage, Exports
1
Author is Lecturer in Department of Economics at Government Post Graduate College Gojra,
Pakistan Email: [email protected]
2
Author is Assistant professor in Department of Economics at Government college
Mustafaabad,Kasur, Pakistan Email: [email protected]
3
Author is Assistant professor in Department of Economics at Goverment college Township
Lahore, Pakistan Email: [email protected]

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 Muhammad Shahid Maqbool,Muhammad Atiq-ur-Rehman & Allah Ditta

1. Introduction occurring in several varieties, pattern and

Exports have attained incredible importance in colours. Salt mines and coal deposits are the
modern economies as their growth is second largest in the world market and copper
indispensable for the growth of every economy. is in the fifth position. Despite the huge
The factor endowments of export commodities, potential in minerals, the contribution of the
however, are considered an important indicator mineral sector to the GDP of Pakistan is
in the development of an economy. When the approximately 3% and the economy's exports
total exports of an economy increase, there is are just 0.1% of the total world exports.
considerable growth in its revenue, while the The objective of this study is to evaluate the
external deficits decrease significantly. In export competitiveness and comparative
addition, the competitiveness of an economy advantage of Pakistan’s mineral sector. The
increases in the world markets as study employed several indices of comparative
well. minerals have been a major source of advantage for measuring the comparative
economic growth in China, Brazil, Italy, Spain advantage and competitiveness in the
and Turkey etc. The minerals have a concerned sector. These indices offer a valuable
multifarious contribution in enhancing per measure to examine the comparative advantage
capita income, employment generation and based on the actual trade performance. This
poverty reduction. Pakistan is blessed with study also employed a relative import
large mineral reserves covering an area advantage index to measure CA in the mineral
of 6000,000 sq.KMs. Most of the visuals are sector as Pakistan is also an importer of these
used commercially with a total output of nearly minerals. Further, the present study utilized
68 million metric tons annually. The mineral relative trade advantage index to examine the
sector of Pakistan has a remarkable growth net trade advantage in the said sector. This
about theory present 3% having operational analysis will be beneficial to enhance the export
mines above 5000 SMEs providing competitiveness of the mineral sector as the
employment opportunities of for 300,000 global markets have altered into far more
laborers (Shah, 2018). Minerals can be competitive than ever before. As no valuable
categorized different titles like metallic, non- study utilizing these selected indices has been
metallic and energy minerals.Pakistan has a conducted yet to examine the export
competitive edge in its mineral resources competitiveness of Pakistan’s minerals. Hence,

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Academic Journal of Social Sciences ISSN 2521-0149
Vol. 4 Issue 3 (July- September 2020) PP 700-710 ISSN 2519-7983

this study is valuable for the future policy processing industries of Danube economies.
framework. The export competitiveness of agro-processed
2. Literature Review products of Ghana was investigated by Oduro
A large number of studies have applied and Offei (2014) by employing a set of RCA
comparative advantage index to evaluate the indices. The findings of the study highlight that
competitiveness of the export of different Ghana had a CA in these selected
economies. Balassa and Marcus (1989) also products.Erkan and Sarıçoban (2014) analyzed
employed RCA method to measure the and compared the export competitiveness of
competitiveness of Japan and USA from Turkey and EU+13 countries by employing
1967-1983. Haddad (2000) examined the RCA indices during 1993-2012 in the science-
export competitiveness of North African and based goods. The results of the analysis
Middle Eastern regions by using a similar illustrate that these goods had not a significant
approach. Fetscherin et al. (2010) used industry impact on the rise of Turkey and EU+13
specialization, export growth rate and relative economies export share in the world market.
industry to gauge the export competitiveness of The product space methodology was employed
Chines manufacturing industries. They by Haddad (2018) to identify the leading export
concluded that 50% of Chines industries were sectors of Tunisia and Egypt economies.
competitive in the World markets. Fetscherin et As far as Pakistan is concerned, the export
al. (2012) also measured the export competitiveness of horticultural products of
competitiveness of Indian manufacturing sector Pakistan was measured by Waqar et al., (2013)
by utilizing 97 industries from 2001-05 and by utilizing some indices of revealed
concluded that 40% of the Indian industries are comparative advantage during 1990-2009 and
competitive in the global markets. Sachithra et concluded that Pakistan had a competitive and
al., (2012) employed RCA, RSCA and TBI comparative advantage in the selected products.
indices to examine the export competitiveness Abbas and Muhammad (2016) investigated the
of Sri Lankan in international trade from 2000- competitiveness of Pakistan's manufacturing
2010. The findings illustrate that Sri Lanka had sector over nine European and eight Asian
a comparative advantage in the selected leading economies by employing Blassa index from
exports. Ignjatijevic et al., (2014) utilized 2003-2013. The findings of the analysis reveal
different revealed comparative advantage that Pakistan had a CA in low value-added
indices to measure the competitiveness of food products. Another study employing the

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 Muhammad Shahid Maqbool,Muhammad Atiq-ur-Rehman & Allah Ditta

revealed comparative advantage indices was competitiveness of numerous products. The

conducted by Irshad and Xin (2017) identified commodity pattern of comparative advantage
the factors responsible for Pakistan’s export has been recognized as a key conception in
competitiveness from 2003-2015. The global trade theory. The notion of comparative
empirical results declare Pakistan as an advantage has got much significance despite the
unimportant trading partner in the World trade. measurement issues. The major flaw is that it is
However, Pakistan is found to have a mentioned in terms of relative autarkic price
comparative advantage in the textile relationship that is not reasonable for the post-
industry.The above-mentioned literature trade equilibria. According to Sharma and
illustrates that there is no valuable study on the Dietrich (2004), post-trade positions should be
comparative advantage and competitive revealed by trade statistics.The economic
advantage in the Pakistani products, namely condition of a country determines the Global
salt, sulfur,, plastering materials, lime and patterns of comparative advantage. Eventually,
cement.The export competitiveness of top five these patterns govern the production,
cotton export economies was examined by consumption and trade among the
Maqbool et al (2020) by utilizing RCA indices. countries. The indices that are constructed from
Maqbool et al (2020) examined the export production, consumption or other variables of
competitiveness in the cereal sector of Pakistan post-trade scenario are usually used to illustrate
by employing several indices of RCA during CA and these indices are called the revealed
2003-2018. The present study, therefore, will comparative advantage (RCA). RCA was
be a vital contributor to the literature and it will initially introduced by Liesner (1958) and
also encourage the researchers to conduct their then operationalized by Balassa (1965.) for the
studies to measure the competitiveness of assessment of CA. According to Balassa and
different export products especially minerals. Noland (1989), the export index of RCA is
3. Measurement of the competitiveness; expressed as the ratio of a country’s export of a
Revealed comparative advantage specific product category to its share in total
indices merchandise exports.
The method of revealed comparative advantage
has been widely employed to measure the
Xm
i ⁄
∑ Xm
RCA(𝐵𝑎𝑙𝑎𝑠𝑠𝑎𝐼𝑛𝑑𝑒𝑥) = Xm
i
(Source; Erkan and Sarıçoban, 2014)
i ⁄
∑ Xm
i

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Academic Journal of Social Sciences ISSN 2521-0149
Vol. 4 Issue 3 (July- September 2020) PP 700-710 ISSN 2519-7983

Where

Xim = Mineral exports of Pakistan

∑ Xim = total exports of Pakistan
Xim = World’s mineral exports
∑ Xim =Total exports of the World
The RCA index value varies between zero, to the other sectors of the economy. Balassa
highlights that a country has no exports in the index can be classified in the four stages to
concerned sector, and infinity, illustrating that explain the power of CA (Hinloopen, 2001):
the selected sector is a major exporter relative

Table 1 Classifications of RCA index

Sr.No Classifications of RCA Interpretations

i. 0 < RCA ≤ 1 There is no CA.
ii. 1 < RCA ≤ 2 There is a weak CA.
iii. 2 < RCA ≤ 4 There is moderate CA.
iv. RCA > 4 There is a strong CA.
(Source; Hinloopen, 2001)
When the study applies logarithms to the RCA net export index (NEI). This index has been
index and the study has LnRCA>0, there is CA, explained as net exports divided by the sum of
while LnRCA<0 indicates comparative imports and exports of the selected products
disadvantage. Balassa also utilized another (Balassa and Noland, 1989).
index of revealed comparative advantage, the
NEI= Xi-Mi/Xi+Mi (Source; Erkan and Sarıcoban, 2014)
This index may beinfluenced by the overall shows net-importer economy (Shohibu, 2013).
position of aneconomy’s trade balance and its When NEI=0, it means the country has the same
range is between -1 and 1. NEI equals to 1 exports and imports. The absolute value |NEI|
illustrating that the qualitative structure of of this index highlights the portion of inter-
exports of a country above its imports or industry trade relative to the total trade of any
aneconomy is net-exporter, while less than 1 product group, and 1-|NEI| represents the

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 Muhammad Shahid Maqbool,Muhammad Atiq-ur-Rehman & Allah Ditta

portion of intra-industry trade (Vixathep, competitiveness byeliminating the double-

2011). counting in the global trade. The index is
The present study also employed Vollrath index explained as
(1991) to gauge the comparative advantage and
Zij
{ }
(∑i Zij )−Zij
RCA# = (∑j Zij )−Zij
(Source; Gnidchenko and Salnikov, 2015)
{ }
[(∑j ∑i Zij )−(∑j Zij )]−[(∑i Zij )−Zij ]

Where
Zij= Mineral exports of Pakistan
∑i Zij = Total exports Pakistan
∑j Zij = Mineral exports of the World
∑j ∑i Zij = Total exports of the World
The revealed symmetric comparative between -1 and 1. This index is defined as
advantage index (RSCA) is employed to follows;
suppress the problem of skewness and it is lies
RCA−1
RSCA = (Source; Erkan and Sarıcoban, 2014)
RCA+1

Apart from the export index of RCA, the study study has measured revealed trade advantage
has also employed the import index of revealed (RTA) (Ferto and Hubbard, 2002).
comparative advantage (RMA). Further, the
MC
i⁄
∑ MC
i
RMA= Mw
(Source; Akhtar et al., 2013)
i⁄
∑ Mw
i

XC
i⁄ MCi⁄
∑ XC ∑ MC
RTA = RCA – RMA = w
Xi
i
- w
Mi
i
(Source; Akhtar et al., 2013)
⁄ w ⁄
∑ Xi ∑ Mw
i

Furthermore, the current analysis developed RSCA indices. This product category classified
“products mapping” by using the NEI and into four groups, namely A, B, C and D.

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Academic Journal of Social Sciences ISSN 2521-0149
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Figure 1

Group; A Group; B
CA CA
Net-exporter country Net-importer country
(RSCA >0 and NEI >0) (RSCA >0 and NEI <0)
Group; C Group; D
Comparative Disadvantage Comparative Disadvantage
Net-exporter country Net-importer country
(RSCA <0 and NEI >0) (RSCA <0 and NEI <0)

(Source: Widodo, 2009)

4. Results and discussion international financial crises, market

diversification, liquidity problem, poor market
Table 2 highlights the exports and imports access, research and development and law and
growth of the nominated product group from order situation (GOP, 2015). The years in
Pakistan to the World. The results illustrate that which Pakistan had a negative export growth
Pakistan had a high export growth rate in this rate, a positive growth ratein the imports were
product group in the years 2004, 2005, 2006, also witnessed in the same years. It means that
2007, 2008, 2011, 2012, 2013 and 2018. Pakistan increased the import of this product
Negative growth was seen in the years 2009, group from the world to fulfil the demand of the
2010, 2014, 2015, 2016 and 2017 due to country.

Table 2: Export and Import growth of Minerals (sulfur, salt, earths and stones, plastering
materials, lime and cement) of Pakistan in the World from 2003-18 (thousands US$)

Years MEOP MEOW TEP MIOP

2004 31.084 18.634 -21.59 63.68
2005 194.93 10.394 27.53 -4.39
2006 13.09 13.389 5.4994 5.209
2007 97.61 14.031 5.3478 11.19
2008 138.74 41.628 13.682 108.6
2009 -6.259 -29.78 -13.43 -46.6
2010 -8.694 14.579 21.979 32.15
2011 10.929 20.664 18.356 26.85
2012 25.137 0.3755 -2.881 -8.62
2013 1.2258 -0.47 2.0607 -2.62
2014 -3.955 1.3702 -1.587 9.102
2015 -26.89 -10.13 -10.65 12.43

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 Muhammad Shahid Maqbool,Muhammad Atiq-ur-Rehman & Allah Ditta

2016 -11.72 -9.792 -7.041 4.381

2017 -13.95 9.5137 6.5453 11.01
2018 16.328 13.542 8.0132 -6.03
Sources; Authors own calculations, Where MEOP= Minerals export of Pakistan, MEOW=
Minerals export of World, TEP= Total export of Pakistan, MRIP= Minerals Import of Pakistan

This study has utilized a set of revealed Pakistan had a competitive disadvantage in the
comparative advantage indices to evaluate the year 2003. The revealed import advantage
export competitiveness of Pakistan‘s minerals index points out that Pakistan had a competitive
for the period 2003-18. In table 3, RCA index disadvantage in the year 2004, while it had a
illustrates that Pakistan has CA in the competitive advantage in the other years in
concerned sector from 2004 to 2018, while imports. The positive values of the relative
comparative disadvantage in 2003. In addition, trade advantage index illustrate that Pakistan
the results indicate that Pakistan had a higher had a net comparative advantage from 2004-18,
CA from 2007-18 having the index value while the net comparative disadvantage in the
greater than 4 (Abbas and Muhammad, 2016). year 2003 (Shah, 2018). The net export index
The trend of RSCA index described that illustrates that Pakistan is a net importer of this
Pakistan enhanced specialization in this sector sector from 2003-04, while net exporter during
from 2004-18. The positive RSCA index 2005-18. Further, the absolute values of the net
illustrates the CA in the years from 2004-18, export index |NEI| point out the portion of inter-
while a negative value shows comparative industry trade in this sector, while 1-|NEI|
disadvantage in the year 2003. The index of highlights the portion of intra-industry trade.
LnRCA points out that Pakistan had a CA in the The findings of “ product mapping” highlight
whole period except 2003. The Vollrath index that Pakistan lies in group B in the years 2003
(1991) reveals that Pakistan had a competitive and 2004, while it lies in group A from 2005-
advantage in the fore-mentioned sector from 18.
2004-18. This index also examined that

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Vol. 4 Issue 3 (July- September 2020) PP 700-710 ISSN 2519-7983

Table 3 Different Revealed Comparative Advantage Indices related to Mineral exports of

Pakistan during 2003-18

1-
Years RCA RSCA LNRCA RCA# RMA RTA NEI |NEI| |NEI|
2003 0.682 -0.19 -0.38 0.681 0.739 -0.06 -0.057 0.057 0.943
2004 1.1682 0.078 0.155 1.169 1.045 0.123 -0.167 0.167 0.833
2005 2.781 0.471 1.023 2.8013 0.609 2.172 0.376 0.376 0.624
2006 3.0397 0.505 1.112 3.0641 0.574 2.466 0.406 0.406 0.594
2007 5.7849 0.705 1.755 5.8899 0.565 5.22 0.616 0.616 0.384
2008 9.9088 0.817 2.293 10.298 0.72 9.189 0.656 0.656 0.344
2009 11.81 0.844 2.469 12.359 0.624 11.19 0.789 0.789 0.211
2010 9.4288 0.808 2.244 9.7533 0.725 8.704 0.708 0.708 0.292
2011 8.7738 0.795 2.172 9.0519 0.809 7.965 0.673 0.673 0.327
2012 11.453 0.839 2.438 11.933 0.733 10.72 0.75 0.75 0.25
2013 11.786 0.844 2.467 12.281 0.754 11.03 0.758 0.758 0.242
2014 11.345 0.838 2.429 11.803 0.737 10.61 0.73 0.73 0.27
2015 8.9826 0.8 2.195 9.2698 0.869 8.114 0.613 0.613 0.387
2016 9.1738 0.803 2.216 9.4556 0.922 8.252 0.558 0.558 0.442
2017 7.3599 0.761 1.996 7.5344 0.818 6.542 0.464 0.464 0.536
2018 7.7052 0.77 2.042 7.9003 0.741 6.964 0.544 0.544 0.456
Source; Author’s calculations by using ITC data

5. Conclusion attract foreign exchange earnings by exporting

The present study aims at measuring the minerals. The need of the hour is to explore and
comparative and competitive advantage of extract these natural reserves by using modern
minerals of Pakistan in the global world. The technologies and expertise. Pakistan should
data has been collected from ITC UN- focus on diversifying its minerals both in terms
COMTRADE and concluded that Pakistan had of the nature of the products as well as markets.
a CA in the minerals exporting sector from For better earnings, the country should
2004 to 2018, while comparative disadvantage concentrate on those markets which offer
in 2003. Further, the net export index illustrates comparatively higher profit margins and have
that Pakistan is a net-exporter of minerals favorable terms of trade.
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