Revealed Comparative Advantages (RCA) of trade in medicinal plants

The competitiveness of an industry can be measured quantitatively by indicators such as revealed comparative advantage (RCA) and domestic price parity and qualitatively by the support and backing the industry receives from institutional factors such as the availability of favourable government policies and support, research and development (R & D) support, institutionalizing quality in production and support from professional associations. For this study, only RCA will be evaluated to determine Malaysian competitiveness in the trade of medicinal plants. RCA is defined by the ratio of net exports and total trade (Mohd Shahwahid, 1997). This indicator can provide a rough understanding of Malaysia's shifting patterns of comparative advantage or disadvantage in the medicinal plant trade.

Since Malaysia has experienced negative net exports from the 1970s until 2006 it is not surprising that the value of revealed comparative advantage (RCA) is also negative throughout the years (Figure 3 and Table 20). This indicates that Malaysian exports of medicinal plants did not have any comparative advantage and the domestic industry is more comfortable importing the related products rather than fully utilizing local resources. In the 1970s, the RCA value ranged from -0.52 to -0.86 with an average value of -0.72. In the 1980s, the average value of RCA increase but in a negative sign to -0.83 (ranging from -0.73 to -0.92) before becoming constant at -0.82 in the 1990s (ranging from -0.74 to -0.92) and -0.80 in the last six years (ranging from -0.74 to -0.84). In short, the RCA values of the medicinal plant trade show that the gap between the import and export values has become bigger over the past 36 years.

Figure 3. Average RCA values of trade in medicinal plants by decade

CTN00697_2_20071207114157

 

Table 20. Average RCA values of trade in medicinal plants by decade

RCA

Decade

1970s

1980s

1990s

Millennium (2000 – 2006)

RCA

-0.72

-0.83

-0.82

-0.80

 

Data on market sales of medicinal plants and products and their growth show that the products have a very significant demand in the domestic as well as the global market. With the high demand for traditional medicinal products as well as the increasing number of players in the competitive market, the consumption of raw materials has become more crucial especially the imported resources. Most of the traditional medicine manufacturers in Malaysia rely more on imported raw materials as the value of imports has always been increasing throughout the years.

Malaysian trade in medicinal plants for the past 36 years has experienced a negative net export which indicates that the herbal industry is more comfortable with imports rather than utilizing local resources to fulfill the demand for traditional remedies.