Lợi thế so sánh của ngành dệt may việt nam

Thai Nguyen University Southern Luzon State University Socialist Republic of Vietnam Republic of Philippines Thesis Title: Comparative Advantage of Vietnam’s Textile and Clothing Industry A Research Proposal Presented to the Faculty of Graduate School Southern Luzon State University Lucan, Quezon, Philippines Thai Nguyen University S.R Vietnam In Partial Fulfillment of The Requirements for The Degree Doctor in Business and Administration SUPERVISOR: ASSOCIATE PRO, DR NGUYEN KHANH DOANH STUDENT NAME: LE ANH TUAN ENGLISH NAME: JOHN THAI NGUYEN, 2013 i ACKNOWLEDGEMENTS Throughout the course of research leading to the completion of this thesis, I have gratitude to many people, who have provided me with tremendous help and support in one way or another, which I think I cannot possibly acknowledge in full measures First and foremost, I would like to express my sincere thanks to Vice Associate Pro Dr.Nguyen Khanh Doanh, my advisor, for his invaluable thoughts, insightful suggestions and useful guidance throughout the thesis works Sincere appreciations were also to the committee members for their propositions, valuable comments, and constructive suggestions which were of substantial value to this study I would like to faithfully acknowledge professors of SLSU & TNU at DBA Program at University of Thai Nguyen for their insightful lectures in different subjects that provide me knowledge and technique to develop a good research My sincere thanks are extended to my entire friends for their meaningful discussion, hospitality and friendships Finally, I am profoundly grateful to my parents, my wife, my sisters and my brothers, who have been always with me in every situation They have been table source of encouragement and sharing during my work ii LIST OF CONTENTS LIST OF CONTENTS Chapter 1: INTRODUCTION 1.1 Problem Statement 1.2 Objectives 1.2.1 General Objective 1.2.2 Specific Objectives 1.3 Dissertation structure Chapter 2: LITERATURE REVIEW 2.1 Theoretical Foundation 2.1.1 Definition of comparative advantage 2.1.2 Theories of comparative advantage 2.1.2.1 Ricardian model 2.1.2.2 Heckscher – Ohlin model (H-O) 10 2.1.3 Factors affecting comparative advantage 14 2.1.3.1 Technological Superiority 14 2.1.3.2 Resource endowments 14 2.1.3.3 Availability of credit 16 2.1.3.4 Economies of scale 16 2.1.3.5 Technological Gap (Benefits of an Early Start) and Product Cycle 17 2.1.3.6 Demand Patterns: Demand Considerations 17 2.1.3.7 National and International Policies 17 2.1.3.8 Factors affecting export performance 18 2.1.4 Comparative Advantage framework 21 2.1.5 Competitive advantage 21 2.1.6 Linking comparative advantage and competitive advantage 24 2.1.7 Measuring comparative advantage 27 2.1.7.1 Balassa’s Index of Revealed Comparative Advantage 27 2.1.7.2 The Donges and Riedel Measure 27 2.1.7.3 Wolter Index 28 2.1.7.4 Michaely Index 28 2.1.7.5 Export Share Ratio 29 Chapter 3: RESEARCH METHODOLOGY 30 3.1 Measuring comparative advantage 30 3.1.1 Revealed comparative advantage 30 3.1.2 Trade balance index 31 iii LIST OF CONTENTS 3.1.3 Trade specialization 32 3.1.4 Market share 32 3.1.5 Alternative Specifications of Revealed Comparative Advantage 33 3.2 Analyzing the Structural Stability 34 3.2.1 Stability of Revealed Comparative Advantage 34 3.2.2 Intra-Distribution Dynamics 35 3.3 Indices of Mobility 36 3.3.1 Shorrocks Index (M1) 36 3.3.2 Shorrocks Index (M2) 37 3.3.3 Sommers and Conlisk Index (M4) 37 3.4 Measure of Export Concentration 37 3.5 Trade Compatibility 38 3.6 Modeling the determinants of comparative advantage 38 3.6.1 Model description 38 3.6.2 Model specification 40 3.6.3 Choosing between FEM and REM 41 3.7 Data sources 41 Chapter 4: EMPIRICAL FINDINGS 43 4.1 Vietnam’s Export Performance in Textile and Clothing 43 4.1.1 Overview of Vietnam’s Economy and Textile and Clothing Exports 43 4.1.2 Structure of Vietnam’s Textile and Clothing Exports 45 4.1.3 Direction of Vietnam’s textile and clothing exports 47 4.2 4.2.1 4.2.2 4.2.3 4.3 Patterns of Vietnam’s Comparative Advantage in Textile and Clothing 51 Patterns of Vietnam’s Comparative Advantage in Textile and Clothing 51 The Dynamics of Vietnam’s Comparative Advantage in Textile and Clothing53 Concentration of Vietnam Textile and Clothing Exports 56 Determinants of Vietnam’s Comparative Advantage and Competitiveness in Textile and Clothing 57 4.4 Trade Complementary and Forecasting Vietnam’s Potential Exports 63 Chapter 5: CONCLUSIONS AND POLICY IMPLICATIONS 65 APPENDICES 67 REFERENCES 69 iv LIST OF TABLES ABSTRACT This Study is the first to attempt a systematic evaluation of the comparative advantage for Vietnam’s Textile and Clothing Industry in the global market The study is timely as Vietnam has made an extensive effort to change its international trade for some years and the consequent increase in competitive pressures and technology transfers, is expected to have led to a restructuring of the economy such that the composition of Textile and Clothing exports Volumne reflects Vietnam’s comparative advantage in the global economy The timeliness of the study is also reinforced by the fact that increased trade integration of Vietnam over the past few years is likely to have contributed to a shift in comparative advantage in Textlile and Clothing Industry in the world market The Study identifies the pattern of comparative advantage using the Balassa (1989) index for export data The index has been calculated at the sector and commodity level of the Harmonized System of classification The Dissertation also analyses comparative advantage according to factor intensity The analysis shows broad in the structure of comparative advantage of Vietnam’s Textile and Clothing Industry I hope that this Dissertation will serve as a useful source and provide valuable reference material for researchers and policy makers associated with and interested in export promotion strategy in Vietnam v LIST OF TABLES LIST OF TABLES Table 4.1: Basic Economic Indicators of Vietnam 43 Table 4.2: Contribution of Textile and Clothing to Vietnam’s Total Exports 44 Table 4.3: Annual Growth Rate of Vietnam’s Textile and Clothing Exports 44 Table 4.4: Structure of Vietnam’s Textile and Clothing Exports (in percent) 45 Table 4.5: Top 10 Textile and Clothing Export Markets of Vietnam (in percent) 47 Table 4.6: Importance of Vietnam in World Exports of Textile and Clothing Exports 49 Table 4.7: Summary of Statistics 51 Table 4.8: Measures of Trade Specialization 51 Table 4.9: Vietnam’s Revealed Comparative Advantage in Textile and Clothing 52 Table 4.10: Results of Galtonian Regression 54 Table 4.11: Transition Probability Matrix 2001-2011 55 Table 4.12: Mobility Indices 56 Table 4.13: Herfindahl Index 56 Table 4.14: Summary of Statistics 57 Table 4.15: Determinants of Vietnam’s Textile and Clothing Exports (REM) 58 Table 4.16A: Tariff rates applied by Vietnam on Imports of Textile (in percent) 61 Table 4.17: Trade Complementary 63 LIST OF FIGURES Figure 2.1: Comparative advantage framework 21 Figure 2.2: Determinants of National Competitive advantage 24 Figure 2.3: Linking Comparative Advantage and Competitive Advantage 25 vi LIST OF ABBREVIATIONS List of Acronyms and Abbreviations FDI Foreign direct investment GDP Gross Domestic Product H-O Heckscher-Ohlin R&D Research and development RCA Revealed Comparative Advantage RSCA Revealed symmetric comparative advantage RTA Relative trade advantage SCA Sustainable competitive advantage TBI Trade Balance Index WB The World Bank WTO World Trade Organization vii CHAPTER 1: INTRODUCTION Chapter INTRODUCTION 1.1 Problem Statement The textile and clothing industry has been historically the core industrial sector in Vietnam’s economy due to its advantage in terms of factor endowments and market scale Many reasons explain why this has long been the key industry of Vietnam: it is a sector with requires light investment; the technology is simple; it mostly uses unskilled labor, etc During the past years, Vietnam’s textile industry has made remarkable efforts and become a main component in the textile industry in Southeast Asia and an important member in the global textile market With around 3,800 companies including state-owned enterprises, joint stock and limited companies, the textile and clothing industry is the leading export sector of Vietnam, making a considerable contribution to the country’s prosperity Vietnam’s textile and clothing industry has developed rapidly in recent years and has become a main component of the country’s economy The export value of textile and clothing products has contributed the second largest share in the country’s total export value This sector has helped significantly to the increase in source of foreign exchange and Vietnam’s gross national product (GDP) In 2006, the export value of the textile and clothing products was 5.8 billion US dollars, making this industry the second most important export sector of Vietnam only after crude oil In 2007, Vietnam became an official member of the World Trade Organization (WTO) This has provided Vietnam great opportunities to develop, especially in terms of international trade as Vietnam receives equal treatment and benefits in trade like other members of WTO, and it was not be subjected to quotas anymore Moreover, joining the WTO helps Vietnam access to global market, expand export markets and increase value of goods exported The textile and clothing industry sector has seen an impressive period of development, with the trade volume increasing around 8% after ten years, from 2001 to 2011 Despite the global economic depression during the past years, the export value of this sector has continued to increase, exceeding 11 billion USD in 2010, an increase of 24% compared with 2009, and 14 billion USD in 2011, an increase of 38% compared with 2010 The production and exports of Vietnamese textile and clothing products contribute a considerable share in the world, accounting for 18.6% of the world’s total exports in textile industry in 2010 Currently, Vietnam ranks number five in the world in terms of textile and clothing exports, with over million people working in this sector, accounting for nearly 5% of the country’s total labor force (VINATEX, 2012) The increase in export value of the sector in recent years results CHAPTER 1: INTRODUCTION from the expansion in export market Beside maintaining the traditional markets such as the US, EU, Japan, the Vietnamese textile and clothing companies has expanded to new export markets such as Korea, Taiwan, the Middle East, and Singapore Rapid development of Vietnam’s textile and clothing industry derives from many factors, including abundant low-cost labor force and a stable political environment Among them, the most important advantage is human capital The Vietnamese labor force has two main characteristics, the first is its low price as well as the higher quality compared with some other countries Vietnam has a young population with a high percentage of people at working age, an annual source supplementing the country’s labor force Vietnam has gained many economic benefits in the textile industry without a loss of the comparative advantage in labor supply, and such an advantage is a driving force for the textile and clothing industry’s further development The second characteristic is its sustainability Expansion of urbanization and improvement in education in Vietnam has provided more high quality labor for the textile and clothing industry, guaranteeing the supply of workers for future development Besides, trade and economic policies have also contributed to the development of the Vietnamese textile and clothing industry and helping Vietnam reach higher position in global market of textile and clothing products Textile and clothing industry has been declared as an key industry of the country’s economy Therefore, the Vietnamese government has adopted policies promoting an export-led growth strategy supported by strong foreign direct investment (FDI) inflows The state monopoly of foreign trade was abandoned The non tariff barriers were reduced Maximum import tariff rates were also decreased These measures have helped to reduce the anti-export bias resulting from the structure of trade protection, which tended to reduce the profitability of exporting compared to producing for the domestic market (Athukorala, 2006 cited in Jean-Rafael and Jean Pierre, 2009) Tariff exemptions were also implemented for imported inputs used in the manufacturing export products as well as tax incentives and Export processing zones have multiplied (Jean-Rafael and Jean Pierre, 2009) Implementation of trade agreements have affected trade liberalization and increased market access After joining international economic organizations such as ASEAN (in 1997) and WTO (in 2007), and signing bilateral trade agreements (for example, with US in 2000), tariffs on imports and exports were significantly reduced or dropped, bringing various economic gains and especially increased market access CHAPTER 1: INTRODUCTION It is obvious that Vietnam possesses a comparative advantage in textile and clothing manufacturing Nonetheless, Vietnam’s textile industry is facing various difficulties, such as excessive resource reliance, most enterprises are medium and small size, low technology and value added, indisposition in trade structure and highly concentrated export markets Another difficulty is the workers’ low level of skill, partly resulting in the low competitiveness of textile products Vietnamese textile workers are considered inferior in terms of professional skills compared with other textile export countries Among over million people working in textile and clothing sector, percentage of skillful workers are relative low Furthermore, supporting industries of textile and clothing manufacturing are still undeveloped and cannot meet the demand from this sector Domestic materials for this industry are seriously deficient and the textile company are unable to rely on domestic suppliers Despite Vietnam having a natural conditions suitable for growing cotton, the total cotton output is still not enough to provide for the textile industry In 2007, Vietnamese textile and clothing companies had to import around 90% of cotton material needed, and 70% of other materials for manufacturing such as fiber and fabric Shortage of local materials in one of main reasons resulting in decrease in business efficiency and in comparative advantage of Vietnamese textile and clothing enterprises On the other hand, the textile and clothing industry is labor intensive Development of the Vietnam’s textile and clothing industry is still determined by labor costs Vietnam’s comparative advantage in textile industry mainly result from low labor costs However, this kind of advantage is tending to decrease as developed countries are persistently investing new technologies into their textile and clothing industries and the advantage of cheap labor in developing countries tends to be weakened along with improvement in productivity in developed countries The developed countries can maintain higher profit in their textile and clothing industry while at the same time reduce production It is therefore urgent for Vietnam have policies and measures to strengthen comparative advantage of textile industry and overcome serious domestic obstacles This dissertation aims at an in-depth investigation of comparative advantage of Vietnam’s textile and clothing industry and brings corresponding suggestions 1.2 Objectives 1.2.1 General Objective EMPIRICAL FINDINGS Regarding the coefficient of the distance variable, it is negative but statistically insignificant Therefore, the interpretation must be made with caution The negative value confirms the intuition that Vietnam exports less to countries which are distant from Vietnam The estimated coefficient of distance is -0.006 This means that, holding constant for other variables, if the distance between Vietnam and its trading partner is increased by 10 percent, Vietnam’s exports of textile and clothing will fall by 0.6 percent The estimated coefficient of colony variable is positive but not different from zero Although it is not statistically significant the positive value would suggest that Vietnam tends to exports textile and clothing more to countries which have similar culture with Vietnam As far as the landlock variable is concerned, the estimated coefficient if negative and statistically significant at 0.05 level This result confirms the theoretical prediction that Vietnam tends to export less to countries which are landlocked According to the model’s estimation, if the partner country is landlocked, Vietnam’s exports of textile and clothing to this country would fall by 41.9 percent, keep other variable constant The estimated coefficient on infrastructure is positive and highly significant This confirms the prediction that the quality of infrastructure has influence on international trade The result suggest that Vietnam will exports more textile and clothing to the rest of the world if the quality of infrastructure in Vietnam and in partner country improves The estimated coefficient on trade freedom is also positive and statistically significant As indicated above, the index of trade freedom represents the trade policy of the country in question Trade freedom reflects an economy’s openness to the flow of goods and services from around the world and the citizen’s ability to interact freely as buyer or seller in the international marketplace The result indicates that Vietnam tends to exports more textile and clothing to her partner countries when the trade policy of these countries are relaxed Finally, with respect to regional trade arrangement variable, the estimated coefficient on ASEAN variable is positive and statistically significant This confirms the prediction that countries in the same bloc tend to trade with each other and above the level predicted by basic explanatory variables Therefore, a pair of countries (Vietnam and her partner country) that join ASEAN would likely experience an increase in Vietnam’s exports of textile and clothing by roughly 89 percent, holding other variables constant This result suggests that Vietnam is able to establish herself as a trade partner of these countries when they were included in the ASEAN 60 EMPIRICAL FINDINGS International Trade Policy Tariffs remain generally high and their non-uniform structure has given rise to large variations in effective rates of protection across industries, and consequently preference being afforded to some industries Vietnam’s continued use of tariff escalation by stages of production reinforces import-substitution policies and favors the least beneficial kinds of production that have little value added for the economy For Vietnam’s export competitiveness, tariffs on tradable inputs used in export-oriented industries can create an anti-export bias Those industries attempting to export rather than sell in the domestic market receive no output tariff protection but must nevertheless pay the protected input costs of tradable inputs The negative effects from the higher costs of inputs are greatest for the textile and apparel industries, vegetable oils and fats, paper products, leather products and fishing and food products Although duties on inputs are in principle offset by the existing duty-drawback scheme in Vietnam, administrative obstacles and delays discourage use of the facility Table 4.16A: Tariff rates applied by Vietnam on Imports of Textile (in percent) SITC-65 2001 2004 2007 2010 ASEAN 32.07 11.10 3.94 3.99 EU 33.89 33.52 31.61 10.34 NAFTA 29.42 32.09 31.32 10.11 World 32.10 29.41 24.97 8.68 China 32.22 32.31 24.18 9.69 Japan 31.04 31.35 30.09 7.91 Korea, Rep 31.18 31.69 30.43 9.63 United States 29.19 32.06 31.43 10.07 Source: UN Table 16B: Tariff rates applied by Vietnam on Imports of Clothing (in percent) SITC-84 2001 2004 2007 2010 61 EMPIRICAL FINDINGS ASEAN 46.73 12.85 4.81 4.75 EU 47.33 46.96 44.52 20.16 NAFTA 42.84 44.46 45.36 19.99 World 46.83 37.68 31.98 16.09 China 47.37 47.71 33.66 19.57 Japan 46.84 45.32 45.55 16.87 Korea, Rep 47.70 47.02 37.95 19.66 United States 44.15 46.14 45.99 20.28 Source: UN 62 EMPIRICAL FINDINGS 4.4 Trade Complementary and Forecasting Vietnam’s Potential Exports One alternative approach adopted from business economics by both the World Bank and the United Nations Economic Commission for Latin America is to assume that there are few natural resource and technological differences between countries Under these conditions, the degree of concentration or so-called agglomeration of industries helps to accounts for developmental differences between countries The concentration of industrial activity in particular a location has allowed some countries to advance more quickly than those countries without industrial agglomeration By changing the manufacturing production base of countries, preferential trade arrangements (PTAs) can help to alter and accelerate the development process of countries In the context of Vietnam’s trade with different regional groupings and major trading patterns, the central indicator of the ability to alter its comparative advantage is the degree of trade compatibility between its export structure and that of its regional or bilateral trading partners Having established compatibility of traded products, one can then invoke performance indicators to reveal the extent to which firms compete effectively in those markets Success in export markets – measured by rapidly expanding exports and rising market shares – indicates the extent to which an economy such as Vietnam is willing and able to achieve global integration and alter its comparative advantage in the regional and global marketplace In the remainder of this chapter, we examine Vietnam’s trade compatibility with the EU, NAFTA, World and ASEAN from the point of view of its exports to those markets, and use a set of performance indicators to identify those products that could benefit from regional and bilateral arrangements such as the U.S.-Vietnam Bilateral Agreement In particular, we used the following criteria to select the products with growth potential in those markets: (a) the degree of trade compatibility between Vietnam and the markets, (b) Vietnam’s recent export growth record, and (c) the trend growth rate of Vietnam’s product market share Table 4.17: Trade Complementary Year EU NAFTA WORLD ASEAN 2001 0.496 0.482 0.51 0.69 2002 0.408 0.405 0.44 0.66 2003 0.379 0.367 0.40 0.63 63 EMPIRICAL FINDINGS 2004 0.374 0.355 0.40 0.63 2005 0.363 0.326 0.38 0.64 2006 0.335 0.332 0.36 0.60 2007 0.305 0.287 0.33 0.60 2008 0.286 0.281 0.32 0.65 2009 0.268 0.272 0.30 0.63 2010 0.284 0.275 0.31 0.66 2011 0.275 0.285 0.30 0.64 Source: The author’s own calculation 64 CONCLUSION AND POLICY IMPLICATIONS Chapter CONCLUSION AND POLICY IMPLICATIONS To foster future production and export, so as to reach continuing development in textile and clothing industry, more relevant policy should be implemented to move the economy and its export sector towards a desirable comparative advantage structure Based on the above analysis, some policy recommendations are made as follows Enhancing human capital and raise technology capacity of textile and clothing firms Optimization of industry structure, enhancement in human capital and technology are preconditions to continuing development, comparative advantage, technological innovation as well as to industrial upgrade in Vietnam’s textile industry In recent years, a large number textile firms in Vietnam have capitalized on outward processing using the country’s unskilled and cheap labor This outward processing does not generally require very high levels of technology The excessive reliance on cheap labor and backward technology to promote exports has prevented Vietnam from moving up the comparative advantage ladder Experience of Asia’s successful economies, such as Japan, the NIEs and some ASEAN countries, shows that quality human capital is pivotal in raising technology levels and competitiveness of firms, which in turn will eventually lead to favorable changes in comparative advantage patterns of the whole economy Vietnam, therefore, should reform its education and training system to make it capable of providing a trained labor force that meets the needs of firms The government also needs to provide incentives and practical support for textile and clothing firms to raise their technology capacity through R&D activities On the firm level, firms in the textile industry ought to strengthen input on R&D, persistently improve technology and release new products into international market as well as impose new technology to present categories Technology is the soul for enterprises’ development and core to competitive advantage, while technological innovation practitioners are enterprises For large firms and firm groups, it is necessary to establish R&D center to construct a market-oriented innovation system in which technology and production cyclically promote each other From the perspective of global economic development, 60%-70% of benefit growth in developed countries relies on progress in science and technology, yet in Vietnam, this ratio is very low It is therefore urgent for Vietnam to reconstruct and upgrade the traditional textile industry with high technology Thus a consummate technological innovation system is required for technology absorbance and renovation 65 CONCLUSION AND POLICY IMPLICATIONS Government’s effective regulation and establishment of industrial early-warning system While official interferences were widely employed among the Vietnamese government to control exports, market method, which includes exchange rate, drawbacks and exporting tariffs, should mainly be adopted by the government in the current market economy to regulate market order and textile export In addition, the government and industry associations ought to analyze Agreement on Textiles and Clothing (ATC) to find good means for Vietnam’s textile exports, improve policy cooperation with other countries, investigate trade policies of textile importing countries, introduce flexible measures to stimulate exports, and settle trade disputes through negotiation within WTO framework with other WTO members Vietnamese government and industrial associations should make active efforts to establish a government-guided industrial early-warning system which involves government, industrial associations and firms Government and industrial associations should also construct industrial information centers and databases In order to overcome technical trade barriers, government and enterprises should provide textile enterprises with assistance, especially in information collection toward technology statutes, technique standards and assessing procedures Consistency between trade and other policy objectives The results underscore the importance of a comprehensive approach to designing economic development policies which should seek consistency between trade and other policy objectives Governments should avoid actively affecting trade patterns in general but such actions may be particularly counterproductive if they are inconsistent with country‘s resource base and other policies in place Thus, when seeking to maintain or develop competitiveness in a certain area—for instance capital-intensive sectors—this is best achieved through drawing on best practices and developing effective broad policies that facilitate capital accumulation In case where a country succeeds in increasing its endowment of capital, relative to other countries and other factors of production, this is likely to result in the re-orientation of its exports toward capital-intensive sectors Importantly, a broad-based approach involves a lower risk of reducing welfare gains from such specialization, compared to policies involving direct support to capital-intensive sectors, though we certainly cannot exclude the possibility that the overall costs of such an approach exceed the benefits 66 APPENDICES 67 APPENDICES Appendix 1: Description of the Commodity SITC Code Commodity Group SITC-65 Textile SITC-651 Textile yarn SITC-652 Cotton fabrics, woven SITC-653 Man-made woven fabrics SITC-654 Woven textile fabric nes SITC-655 Knit/crochet fabrics SITC-656 Tulle/lace/embr/trim etc SITC-657 Special yarns/fabrics SITC-658 Made-up textile articles SITC-659 Floor coverings etc SITC-84 Clothing SITC-841 Mens/boys wear, woven SITC-842 Women/girl clothing woven SITC-843 Men/boy wear knit/croch SITC-844 Women/girl wear knit/croch SITC-845 Articles of apparel nes SITC-846 Clothing accessories SITC-848 Headgear/non-text clothing 67 APPENDICES 68 Appendix 2A: Transition Probability Matrix 2001-2004 RCA a b c d a 0.75 0.14 0.06 0.06 b 0.33 0.22 0.11 0.33 c 0.00 0.00 0.54 0.46 d 0.00 0.00 0.21 0.79 Initial distribution 0.53 0.19 0.14 0.15 Final distribution 0.46 0.11 0.16 0.27 Source: The author’s own computation Appendix 2B: Transition Probability Matrix 2004-2007 RCA a b c d a 0.91 0.05 0.05 0.00 b 0.18 0.18 0.55 0.09 c 0.00 0.20 0.60 0.20 d 0.00 0.00 0.19 0.81 Initial distribution 0.46 0.11 0.16 0.27 Final distribution 0.44 0.07 0.23 0.26 Source: The author’s own computation Appendix 2C: Transition Probability Matrix 2007-2011 RCA a b c d a 0.88 0.07 0.02 0.02 b 0.43 0.29 0.00 0.29 c 0.18 0.14 0.41 0.27 d 0.00 0.00 0.04 0.96 Initial distribution 0.44 0.07 0.23 0.26 Final distribution 0.46 0.08 0.11 0.34 Source: The author’s own computation 68 REFERENCES REFERENCES Anderson, J E., 1979 A Theoretical Foundation for the Gravity Equation, American Economic Review 69: 106-116 Anderson J.E and van Wincoop, E., 2001 Gravity with Gravitas: A Solution to the Border Puzzle, NBER Working Paper 8079 Anderson, J and Marcouiller, 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