Revealed Comparative Advantage - Exports of Rwanda
Added on 2022-07-07
9 Pages6780 Words32 Views
See discussions, stats, and author profiles for this publication at: https://www.researchgate.net/publication/317507434
Revealed Comparative Advantage: An Analysis of Exports of Rwanda
Article in IOSR Journal of Economics and Finance · May 2017
DOI: 10.9790/5933-0803036976
CITATIONS
8
READS
1,173
2 authors, including:
Harish Kumar
University of Delhi
6 PUBLICATIONS 38 CITATIONS
SEE PROFILE
All content following this page was uploaded by Harish Kumar on 20 March 2019.
The user has requested enhancement of the downloaded file.
Revealed Comparative Advantage: An Analysis of Exports of Rwanda
Article in IOSR Journal of Economics and Finance · May 2017
DOI: 10.9790/5933-0803036976
CITATIONS
8
READS
1,173
2 authors, including:
Harish Kumar
University of Delhi
6 PUBLICATIONS 38 CITATIONS
SEE PROFILE
All content following this page was uploaded by Harish Kumar on 20 March 2019.
The user has requested enhancement of the downloaded file.
IOSR Journal of Economics and Finance (IOSR-JEF)
e-ISSN: 2321-5933, p-ISSN: 2321-5925.Volume 8, Issue 3 Ver. III (May - June 2017), PP 69-76
www.iosrjournals.org
DOI: 10.9790/5933-0803036976 www.iosrjournals.org 69 | Page
Revealed Comparative Advantage: An Analysis of Exports of
Rwanda
Mayank Gupta1, Harish Kumar2
1(Day Scholar, Shri Ram College of Commerce, University of Delhi, New Delhi)
2(Assistant Professor, Shri Ram College of Commerce, University of Delhi, New Delhi)
Abstract : The paper undertakes a detailed analysis of Revealed Comparative Advantage of the exports of
Rwanda. The objective of the research is to understand the Rwanda’s pattern of trade; to identify a change in
this pattern over the period of study; in support of the policies and strategies, to identify areas for improvement.
Rwanda is primarily an agrarian economy where people have been dependent on country’s natural endowments
for subsistence. A large population is still employed in the agricultural sector. The revealed comparative
advantage lies in primary products. There has been little change in the composition of exports. The Standard
Balassa Revealed Comparative Advantage Index (BRCAI) has been used for analysis. Rwanda’ RCAI in its
otherwise primary exports product lines has been declining owing to increasing pressure from the supply side.
Intense competition from other exporting economies has made Rwandan exports uncompetitive. The country
needs to invest in research and development, technological advancements and Education in order to boost
output and exports. The government needs to push reforms in industrial sector and open up the economy for
private players in more industries, especially agro-processing and leather-goods.
Keywords: Revealed Comparative Advantage, Balassa Index, Rwanda, Namibia, Export Competitiveness
I. Introduction
Located in eastern Africa, Republic of Rwanda, or normally Rwanda, is a small country which holds
strategic interests for various parties today. The country boasts a plethora of qualities which compel us to study
it in detail. Spanning across 26,338 sq. km of area, Rwanda is home to approximately 13 million people. After
the Genocide in 1994, the country embarked upon a journey of development which saw unprecedented level of
dedication and support from the end of all major stakeholders, especially the Rwandan Government.The
Government, after the genocide, thrived to resurrect the economy. From identification of strategic sectors to
implementation of various plans and policies successfully, the economy has achieved its growth targets with
pride. It is a landlocked country sharing its boundaries with Burundi, Democratic Republic of Congo, Tanzania
and Uganda. The country is rich in gold, Cassiterite (tin ore), Wolframite (tungsten ore), methane reserves, and
hydropower and arable land. Over 93% of its population is less than 55 years old. 74.5% of its land is used for
agriculture. Agriculture provides employment and subsistence to 90% of the population while its share in the
GDP is just 34.6%. Its GDP has grown at an average rate of 7-8% since 2003 and inflation has dropped to single
digits. 28.8% of its population lives in urban areas and rate of urbanization is 6.43%. The government has been
successful to make provision of basic facilities for a majority of population after the genocide. The literacy rate
is 70.5%. Tourism, minerals, coffee and tea are the main sources of foreign exchange earnings today. Mining,
Construction, Agriculture are the cornerstones of its economy. The government has been making sincere efforts
to make these and other related sectors more lucrative for foreign investments and improve country‟s socio-
economic situation. Rwanda displays rare qualities to become a major economy in the future based on its pro-
active, strong and stable government, rising literacy level and urbanization, falling infant and maternal mortality
rate, poverty and death rate. Its entry in the East African Community (EAC) has opened new opportunities.
Rwanda has been active in international trade since a long time. The country has been exporting cash
crops, primarily coffee and tea since colonial times and still depends on the same for a large chunk of its foreign
exchange earnings. Over the years, the product lines and categories that Rwanda exports in have expanded.
Though it is primarily an agrarian economy, it has started to export semi-processed and processed products as
well. With growing inter-dependence among all the countries in the world, the role of each one of them matters.
So, it becomes imperative to understand how Rwanda stands in Exports and where does its specialization lie.
The study is organized in the following sequence. Starting with introduction, a selective review of literature on
revealed comparative advantage and its application is done, especially in the Rwandan and African context.
Next, the objectives of study and methodology used have been specifically and precisely described. In chapter 4,
the analysis of comparative advantage of Rwandan Exports is undertaken and interpretation is done. Finally, in
the last chapter, conclusions are drawn and recommendations are given.
e-ISSN: 2321-5933, p-ISSN: 2321-5925.Volume 8, Issue 3 Ver. III (May - June 2017), PP 69-76
www.iosrjournals.org
DOI: 10.9790/5933-0803036976 www.iosrjournals.org 69 | Page
Revealed Comparative Advantage: An Analysis of Exports of
Rwanda
Mayank Gupta1, Harish Kumar2
1(Day Scholar, Shri Ram College of Commerce, University of Delhi, New Delhi)
2(Assistant Professor, Shri Ram College of Commerce, University of Delhi, New Delhi)
Abstract : The paper undertakes a detailed analysis of Revealed Comparative Advantage of the exports of
Rwanda. The objective of the research is to understand the Rwanda’s pattern of trade; to identify a change in
this pattern over the period of study; in support of the policies and strategies, to identify areas for improvement.
Rwanda is primarily an agrarian economy where people have been dependent on country’s natural endowments
for subsistence. A large population is still employed in the agricultural sector. The revealed comparative
advantage lies in primary products. There has been little change in the composition of exports. The Standard
Balassa Revealed Comparative Advantage Index (BRCAI) has been used for analysis. Rwanda’ RCAI in its
otherwise primary exports product lines has been declining owing to increasing pressure from the supply side.
Intense competition from other exporting economies has made Rwandan exports uncompetitive. The country
needs to invest in research and development, technological advancements and Education in order to boost
output and exports. The government needs to push reforms in industrial sector and open up the economy for
private players in more industries, especially agro-processing and leather-goods.
Keywords: Revealed Comparative Advantage, Balassa Index, Rwanda, Namibia, Export Competitiveness
I. Introduction
Located in eastern Africa, Republic of Rwanda, or normally Rwanda, is a small country which holds
strategic interests for various parties today. The country boasts a plethora of qualities which compel us to study
it in detail. Spanning across 26,338 sq. km of area, Rwanda is home to approximately 13 million people. After
the Genocide in 1994, the country embarked upon a journey of development which saw unprecedented level of
dedication and support from the end of all major stakeholders, especially the Rwandan Government.The
Government, after the genocide, thrived to resurrect the economy. From identification of strategic sectors to
implementation of various plans and policies successfully, the economy has achieved its growth targets with
pride. It is a landlocked country sharing its boundaries with Burundi, Democratic Republic of Congo, Tanzania
and Uganda. The country is rich in gold, Cassiterite (tin ore), Wolframite (tungsten ore), methane reserves, and
hydropower and arable land. Over 93% of its population is less than 55 years old. 74.5% of its land is used for
agriculture. Agriculture provides employment and subsistence to 90% of the population while its share in the
GDP is just 34.6%. Its GDP has grown at an average rate of 7-8% since 2003 and inflation has dropped to single
digits. 28.8% of its population lives in urban areas and rate of urbanization is 6.43%. The government has been
successful to make provision of basic facilities for a majority of population after the genocide. The literacy rate
is 70.5%. Tourism, minerals, coffee and tea are the main sources of foreign exchange earnings today. Mining,
Construction, Agriculture are the cornerstones of its economy. The government has been making sincere efforts
to make these and other related sectors more lucrative for foreign investments and improve country‟s socio-
economic situation. Rwanda displays rare qualities to become a major economy in the future based on its pro-
active, strong and stable government, rising literacy level and urbanization, falling infant and maternal mortality
rate, poverty and death rate. Its entry in the East African Community (EAC) has opened new opportunities.
Rwanda has been active in international trade since a long time. The country has been exporting cash
crops, primarily coffee and tea since colonial times and still depends on the same for a large chunk of its foreign
exchange earnings. Over the years, the product lines and categories that Rwanda exports in have expanded.
Though it is primarily an agrarian economy, it has started to export semi-processed and processed products as
well. With growing inter-dependence among all the countries in the world, the role of each one of them matters.
So, it becomes imperative to understand how Rwanda stands in Exports and where does its specialization lie.
The study is organized in the following sequence. Starting with introduction, a selective review of literature on
revealed comparative advantage and its application is done, especially in the Rwandan and African context.
Next, the objectives of study and methodology used have been specifically and precisely described. In chapter 4,
the analysis of comparative advantage of Rwandan Exports is undertaken and interpretation is done. Finally, in
the last chapter, conclusions are drawn and recommendations are given.
Revealed Comparative Advantage: An Analysis of Exports of Rwanda
DOI: 10.9790/5933-0803036976 www.iosrjournals.org 70 | Page
II. Literature Review
International Trade is defined as the exchange of capital, goods and services across international
borders or territories. It has been prevalent since a millennium. Consistent with the way in which nations traded
with each other over time, economists developed theories to explain the mechanisms of global trade. The
phenomenon has evolved considerably over time. Ranging from the classical theory which talked about global
trade mechanics from a country‟s perspective, there are modern theories which talk about international trade
from a firm‟s perspective. But a basic question which intrigues us is „why do countries trade?‟ Trading across
borders provides various benefits. Adam Smith, in his book „The wealth of Nations‟, interpreted the meaning of
„Value‟ in two ways:
1) Exchange value
2) Consumption value
He propounded that some commodities possess exchange value, which make them of little use for
consumption but adept for being used as a medium of exchange. On the other hand, other commodities possess
consumption value, which possess utility for consumption but are incapable of being used for exchange.
International trade helps countries engaging in it to buy goods which hold consumption value in exchange of
goods which hold exchange value. Countries trade because of relative differences in prices of the same good
across different parts of the world. The relevance and importance of International Trade has increased
remarkably over the last two centuries, especially since the Industrial Revolution and can be gauged from the
growth in absolute value of exports over time. The figure 1 below shows the value of exports of goods and
services from 1960 to 2015. From US$155 Billion in 1960, the value has increased to US$ 21.27 Trillion, at a
compound annual growth rate of 9.36%.
Figure 1: Global Export Value Growth, 1960-2015
Further, a measure to look into the importance of International trade is to look at the share of traded
goods in relation to the size of the world economy. The share of exports in world GDP has increased from 12%
in 1960 to near 30% in 2015. Thus, trade is rising not only in absolute terms but also in relation to the size of the
world economy, hence gaining more importance.
Figure 2: Global Export of Goods & Services as a % of GDP, 1960-2015
The concept which suggests what an economy should export and import was coined for the first time in
the 18th Century by Adam Smith when he talked about „Absolute Advantage‟ in his book „The Wealth of
Nations‟. He advocated the idea of exporting those goods in which an economy has absolute advantage, i.e.
goods which the economy can produce at lesser cost of production than rest of the world. It advocates the
phenomenon that each country shall eventually shift its limited factors of production, assumed to be labour, to
produce those goods and services that it specializes in. Later, David Ricardo came up with a new concept in his
book „The Principles of Political Economy and Taxation‟ where he supported the idea of exporting only those
goods in which an economy enjoys „Comparative‟ Advantage. The idea of comparative advantage lied in
DOI: 10.9790/5933-0803036976 www.iosrjournals.org 70 | Page
II. Literature Review
International Trade is defined as the exchange of capital, goods and services across international
borders or territories. It has been prevalent since a millennium. Consistent with the way in which nations traded
with each other over time, economists developed theories to explain the mechanisms of global trade. The
phenomenon has evolved considerably over time. Ranging from the classical theory which talked about global
trade mechanics from a country‟s perspective, there are modern theories which talk about international trade
from a firm‟s perspective. But a basic question which intrigues us is „why do countries trade?‟ Trading across
borders provides various benefits. Adam Smith, in his book „The wealth of Nations‟, interpreted the meaning of
„Value‟ in two ways:
1) Exchange value
2) Consumption value
He propounded that some commodities possess exchange value, which make them of little use for
consumption but adept for being used as a medium of exchange. On the other hand, other commodities possess
consumption value, which possess utility for consumption but are incapable of being used for exchange.
International trade helps countries engaging in it to buy goods which hold consumption value in exchange of
goods which hold exchange value. Countries trade because of relative differences in prices of the same good
across different parts of the world. The relevance and importance of International Trade has increased
remarkably over the last two centuries, especially since the Industrial Revolution and can be gauged from the
growth in absolute value of exports over time. The figure 1 below shows the value of exports of goods and
services from 1960 to 2015. From US$155 Billion in 1960, the value has increased to US$ 21.27 Trillion, at a
compound annual growth rate of 9.36%.
Figure 1: Global Export Value Growth, 1960-2015
Further, a measure to look into the importance of International trade is to look at the share of traded
goods in relation to the size of the world economy. The share of exports in world GDP has increased from 12%
in 1960 to near 30% in 2015. Thus, trade is rising not only in absolute terms but also in relation to the size of the
world economy, hence gaining more importance.
Figure 2: Global Export of Goods & Services as a % of GDP, 1960-2015
The concept which suggests what an economy should export and import was coined for the first time in
the 18th Century by Adam Smith when he talked about „Absolute Advantage‟ in his book „The Wealth of
Nations‟. He advocated the idea of exporting those goods in which an economy has absolute advantage, i.e.
goods which the economy can produce at lesser cost of production than rest of the world. It advocates the
phenomenon that each country shall eventually shift its limited factors of production, assumed to be labour, to
produce those goods and services that it specializes in. Later, David Ricardo came up with a new concept in his
book „The Principles of Political Economy and Taxation‟ where he supported the idea of exporting only those
goods in which an economy enjoys „Comparative‟ Advantage. The idea of comparative advantage lied in
End of preview
Want to access all the pages? Upload your documents or become a member.