The dynamics of comparative advantage of latecomer members under regional economic integration

Regional economic integration (REI) such as EU, North American Free Trade Agreement (NAFTA) and Association of Southeast Asian Nations (ASEAN) has expanded intra-regional trade in goods and services and increased export potential of member countries. Based on the static comparative advantage of the Ricardian model and the Heckscher-Ohlin model, member countries under REI specialize in each product in which the country has a comparative advantage. However, from a dynamic perspective, the production and export structure of each member country under REI could be changed with a shift in the source of comparative advantage such as relative factor productivity and factor endowment ratio over time. This paper examines the dynamics in export structure in member countries under REI, in particular focusing on the latecomer members. By applying survival analysis to the detailed trade data of the UN Commodity Trade Statistics, we analyze the upgrading process of export structure and the determinants of the duration periods of newly-exported products in order to examine if there is a tendency of diversification and advancement of export varieties of latecomer members. We use a dataset of several selected lower income-level and the newer members from ASEAN, such as Cambodia and Vietnam and EU such as Bulgaria and Romania, for comparison. Based on the results of examination of diversification of export specialization and its duration, we verify that the development of trade structure is facilitated by reduction of trade cost and economies of scale under REI, and demonstrate whether a shift of comparative advantage is a significant factor to expand newly-exported products stably. The result reveals the conditions necessary for the latecomer members under REI to take advantage of backwardness and catch-up with the preceding members.