Enhancing competitiveness in a dynamic global economy: moving from comparative advantage to competitive advantage

Abstract

The concepts of comparative advantage and competitive advantage have been examined in this paper. Comparative advantage is built on the theory of factor endowments or factor proportions whereas competitive advantage includes demand conditions, the status of related and supporting industries, industry specific conditions and a host of other factors like technology and human resource development in addition to factor endowments. The changes in all these factors in a dynamic context and the ability to positively respond and adapt to these changes will determine competitive advantage of firms at the micro level and competitive advantage of nations at the macro level. Comparative advantage was measured using the net-export to total trade ratio while competitive advantage, though difficult to measure, was proxied by the Grubel-Lloyd measure of intra-industry trade. The results of the empirical analysis point to the significant growth and importance of intra-industry trade in the Malaysian economy and that this intra-industry trade was generated by multinational affiliates.