Bilateral trade in agriculture between China and Thailand under comparative advantage versus new trade theory

Abstract

This study finds evidence to support whether either comparative advantage or new trade theory explains the bilateral trade in agricultural products between China and Thailand. It investigates whether the value of exports from Thailand to China, the value of exports from China to Thailand, and the balance of trade in agricultural products of Thailand over China are driven by either Revealed Comparative Advantage (RCA) index for the proxy of comparative advantage or Grubel-Lloyd (GL) index as a proxy of product differentiation according to the new trade theory. The results show that only the comparative advantage explains the variation of value of exports of both countries. It also dominates the new trade theory in the explanation of trade surplus of Thailand over China. However, the trade surplus of China over Thailand is occasional and is not determined by neither the comparative advantage nor new trade theory. The dominance of comparative advantage over new trade theory signifies that both countries enjoy natural resource-based agricultural production over their uniqueness of locations and landscapes. Both countries are not driven by science and technology much enough in order to lead them to innovation-based agricultural production. Therefore, policies that preserve the uniqueness of locations and land use is crucial for maintaining the comparative advantage, as well as the enhancement of science and technology to transform the production to more innovation-based that should move both countries to more intra-industry trade would make their agricultural exports more sustainable in the long-run.