Comparative Advantage in International Trade : A Study Based on Leading Exports in Sri Lanka

The export and import economic policy has both advantages and disadvantages. In Sri Lanka, however, export and import economy led to unsymmetrical export portfolio, which has continuously outcome for deficit trade balances. The main objective of this study is to identify international competiveness of Sri Lankan exports. Revealed Symmetric Comparative Advantage (RSCA) indices use to identify the trade pattern, the sectors in which an economy has a comparative advantage, by comparing the country of interests’ trade profile with the world average. Trade Balance Index (TBI) is employed to analyze whether a country has specialization in export (as net-exporter) or in import (as net-importer) for a specific group of products. This paper concludes that even though, Sri Lanka has comparative advantage for leading exports, it does not provide significant contribution to overcome negative impact of comparative disadvantage and net import products.


Introduction
Sri Lanka experienced diverse economic policies during different stages: prior to the colonization (before 1505), colonial period (1505 -1948), after the independence (1948 -1977) and economic liberalization, and its aftermath (1977to date).Prior to colonization, Sri Lanka experienced self-sufficient economic system which categorize as a mercantilism international trade policy, and the country was a main international trade hub in the Indian Ocean.However, during the colonial period, Sri Lankan economy was influenced to shift to an export and import economy discarding the self-sufficient economic system.The export and import economic policy has both advantages and disadvantages.In Sri Lanka, however, export and import economy led to unsymmetrical export portfolio which has continuously earned deficit trade balances.After 1977, Sri Lanka followed an advanced export diversification policy, which promoted more industrial products.However, due to lack of backward industries and inherent weaknesses in export sector, Sri Lanka continues to encounter issues in its international trade which demonstrated macroeconomics instability.Sri Lankan exports in 1948 were substantially dependent on agricultural sector due to the influenced of colonization.Today, even after 60 years of independence, the figures (Table 01) highlighted that the country has not been deviated from the rooted practice.According to Table 01, in 1986, there was a significant change in composition of exports.Due to higher fluctuations of tea prices at the world market, textile and apparel sector became the highest contributor in exports.By 2010, textiles and apparels and tea respectively, constituted 42.2% and 16.6% out of total export of Sri Lanka.Even though, industrial products contribute to a significant portion of the exports, agricultural sector (mainly tea) provides the highest net foreign earning of Sri Lanka.Therefore, it is important to analyze export product portfolio in Sri Lanka that based on principles of comparative advantage.Hence, research problem of this study is to examine whether or not Sri Lanka exports the products with comparative advantage.Accordingly, the main objective of this research is to identify the international competiveness of Sri Lankan exports.However, the following sub objectives are also expected to be achieved:  To identify comparative disadvantage products in Sri Lankan export product portfolio.
 To identify specialization in exports or imports.

Literature Review
Literature review of this study is mainly divided into two sections; international trade theories and the empirical studies on comparative advantage theory.

Trade Theories
The first theory of international trade, mercantilism, emerged in the mid 16 th century in England.The principle assertion of mercantilism was that gold and silver, those were the mainstays of national wealth and essential to vigorous commerce.At that time, gold and silver were the currencies; a country could earn gold and silver by exporting goods.The main tenet of mercantilism was that in a country's best interests to maintain a trade surplus, to export more than its imported.The mercantilism doctrine advocated that government intervention should be there to achieve a surplus in the balance of trade.The mercantilism viewed trade as a zero-sum game.(A zero-sum game is one in which a gain by one country results in a loss by another.) It was left Adam Smith and David Ricardo to show the shortsightedness of the mercantilism approach and to demonstrate that trade is a positive-sum game, or a situation in which all countries can benefit.Adam smith criticized the mercantilist assumption that trade is zerosum game.Smith argued that countries differ in their ability to produce goods and services efficiently.According to Smith, countries should specialize in the production of goods for which they have an absolute advantage and then trade these for goods produced by other countries.Thus, a country has an absolute advantage in the production of a product when it is more efficient than any other country in producing it.Smith's basic argument, therefore, is that a country should never produce goods at home that it can buy at a lower cost from other countries.
Ricardo (1817) took Adam Smith's theory one step further by exploring what might happen when one country has an absolute advantage in the production of all goods.Smith's theory of absolute advantage suggested that such a country might derive no benefit from international trade.David Ricardo firstly introduces the concept of comparative advantage, the term "comparative" means relative not necessarily absolute.
According to the law of comparative advantage, even if one nation is less efficient than the other nation in the production of both commodities, there is still a basis for mutually beneficial trade.The nation should specialize in the production and export of the commodity in which the absolute disadvantage is smaller and import the commodity in which the absolute disadvantage is greater.The Ricardian model is based on several strict assumptions: (1) fixed endowment of (identical) resources, (2) factors of production are completely mobile between alternative uses within a country, (3) factors of production are completely immobile externally, (3) a labor theory of value is employed in the model, (4) the level of technology is fixed for both countries, (5) unit costs of production are constant, (6) there is full employment at any given time ( 7) perfect competition at the domestic market, (8) no government-imposed obstacles to economic activity, (9) internal and external transportation costs are zero, (10) for simple analysis: a 2-country, 2-commodity world.
Ricardo's theory stressed that comparative advantage arises from differences in productivity.
Differences in labour productivity between nations underlie the notion of comparative advantage.Swedish economists Eli Heckscher (1919) and Bertil Ohlin (1933) put forward a different explanation of comparative advantage (Salvatore, D., 2004).They argued that comparative advantage arises from differences in national factor endowments.By factor endowments they meant that the extent to which a country is endowed with such resources as land, labour, and capital.Nations have varying factor endowments, and different factor endowments explain differences in factor cost; specially, the more abundant factor, the lower its cost.The Heckscer-Ohlin theory (H-O theory) predicts that countries will export those goods that make intensive use of factors that are locally abundant, while importing goods that make intensive use of factors that are locally scarce.The H-O theory argues that the pattern of international trade is determined by differences in factor endowments, rather than differences in productivity.
Raymond Vernon initially proposed the product life-cycle theory in the mid 1960s.Vernon's theory was based on the observation that for most of the 20 th century a very large proportion of the world's new products had been developed by United State (U.S) firms and sold first in the U.S market.The demand for most new products tends to be based on non-price factors.
Consequently, firms can charge relatively high prices for new products (Porter, M., 1990).
Vernon further argued that early in the life cycle of typical new product, while demand is starting to grow rapidly in the developed countries is limited to high-income groups.The limited initial demand in other developed countries does not make it worthwhile for firms in those countries to start producing the new product, but it does necessitate some exports from the initiator to those countries.Over time, demand for new product starts to grow in other developed countries; it becomes worthwhile for foreign producers to begin producing for their home markets and limit the potential for exports from the initiator.Now, the product becomes more standardized, and the price becomes the main competitive weapon.As this occurs, cost considerations starts to play a greater role in the competitive process.If other developed countries' labour cost is lower than the initiator, they might now be able to export to it.
The cycle by which the initiator lost its advantage to the other developed countries might be repeated once more, as developing countries begin to acquire a production advantage over developed countries.Thus, the advantage of production initially switches from the initiator to other developed countries and then more from those countries to developing countries.The consequence of these trends for the pattern of world trade is that over time the initiator switches from being exporter of the product to an importer of the product as production becomes concentrated in low-cost foreign locations.
According to Krugman, and Obstfeld (2005), the new trade theory began to emerge in the 1970s when a number of economists pointed out that the ability of firms to attain economies of scale has important implications for international trade success.Economies of scale are unit cost reductions associated with a large scale of output.Then the new trade theory makes two important points.First, through its impact on economies of scale, trade can increase the variety of goods available to consumers and decrease the average costs of those goods.
Second, in those industries, when the output required to attain economies of scale represents a significant proportion of total world demand, the global market may only be able to support a small number of enterprises.Thus, world trade in certain products may be dominated by countries whose firms were first movers in their production.
During the 1980s, economists such as Paul Krugman stresses that in some cases, countries specialize in the production and export of particular products not because of underlying differences in factor endowments, but because in certain industries, the world market can support only a limited number of firms.In such industries, firms that enter in to the market first are able to build a competitive advantage that is subsequently difficult to challenge (firstmover advantage).
In 1990, Michael Porter attempted to determine why some nations succeed and others fail in international competitions.Like the work of the new trade theories, Porter's work was driven by a belief that existing theories of international trade told only part of the story.Porter theorizes that four broad attributes of a nation shape the environment in which local firms compete, and these attributes promote or impede the creation of competitive advantage (Porter, 1990).These attributes are called as diamond;  Factor endowments -a nation's position in factors of production such as skilled labour or the infrastructure necessary to compete in a given industry.
 Demand conditionthe nature of home demand for the industry's product or service.
 Relating and supporting industriesthe presence or absence of supplier industries and related industries that are internationally competitive.
 Firm strategy, structure and rivalrythe conditions governing how companies are created, organized and managed and the nature of domestic rivalry.
Porter argues that firms are most likely to succeed in industry segments where the diamond is most favorable.The effect of one attribute is contingent on the state of others.For an example, the favorable demand conditions will not result in competitive advantage unless the state of rivalry is sufficient to cause firms to respond to them.Based on Porter's theory, country should be exporting products from those industries where all four components of the diamond are favorable, while importing in those areas where the components are not favorable.

Empirical Studies
There are many empirical measures of comparative advantage.Balance et al.., (1987) summarize the available empirical measures as follows; the ratio of exports (this index varies from 0 to 1 and basically shows the portion of domestic production that is exported. Exportable commodities have index greater than zero and non-exportable commodities have the index less than zero), the ratio of imports (this index represents the portion of imports in consumption), the ratio of net trade (this index shows the portion of difference between exports and imports), the ratio of production to consumption (this index basically shows the portion of domestic production from the total consumption), the ratio of actual net trade to expected production, the ratio of the deviation of actual from expected production to expected production, the ratio of the deviation of actual from expected consumption to expected production, the ratio of the net trade from the total trade and the ratio of actual exports to expected exports.(The applicability of the above mentioned measures depends upon the availability of data required) Revealed comparative advantage (RCA) is one of measures of international competitiveness and has gained general acceptance (Utkulu and Seymen, 2004).It is grounded in conventional trade theory and measures a country's exports of a commodity relative to that of a set of countries.The RCA analysis is largely based on contributions of Balassa (1977) and Vollrath (1991).
The concept of revealed comparative advantage was introduced by BelaBalassa in 1965 to identify the relative trade performances in countries.In this model, it assumes that the commodity pattern of trade reflects inter-country differences in relative costs as well as in non-price factors.Balassa (1977) analyzes the revealed comparative advantage of the major countries; United States, Canada, European Common Market…etc.) in manufactured goods.
Balassa used export and export-import ratios data to measure RCA of major industrial countries with in the period from year 1953 to 1971.
Tri Widodo (2010) reviews the theory and various empirical measures of comparative advantage, and argues that for the catching-up economies, like ASEAN countries, the meaning of "leading exported products" could be examined from the two points of view i.e.
international competitiveness and country's trade balance.Further, "Products mapping" is used as an analytical tool for analyzing comparative advantage of the catching up economies.
The paper concludes that in the cases of ASEAN countries, the higher the comparative advantage for a specific product, the higher the possibility of the country to become netexporter.This finding strongly supports for the theory of comparative advantage.
The revealed comparative advantage (RCA) is a widely used index to seek the competitiveness and its progress.Mika Widgrén (2004) investigates comparative advantage and its development across selected Asian, American and European countries.By doing so, the Balassa index of revealed comparative advantage is calculated.Serin and Civan (2008) use the revealed comparative advantage (RCA) and the comparative export performance It is stated that the advantage of using the comparative advantage index is that it considers the intrinsic advantage of a particular export commodity and is consistent with changes in an economy's relative factor endowment and productivity, the disadvantage, however, is that it cannot distinguish improvements in factor endowments and pursuit of appropriate trade policies of a country.
Based on the flying geese concept, there are two crucial variables for analyzing the economies' comparative advantage, namely, domestic trade-balance and international competitiveness (Widodo, 2010).
Export Development Board of Sri Lanka (EDB) prioritizes Key Product Sectors (KPS) based on various dimensions.They are, Contribution to total exports, RCA, Share in the World Market, NFE, World Trend 2004-2008, Sri Lanka Trend 2004-2008, 2009  Lanka has recorded a noteworthy increased in comparative advantages with respect to product groups such as clothing, rubber, footwear, travel goods, fish preparations, wood products, vegetable material and other labour intensive manufactured goods.Similarly, six different product groups appear to have remained with minimal changes in comparative advantages during the same period.The analysis also shows decreasing comparative advantages between 1962-1995 with respect to few product sectors such as crude rubber, minerals, perfume and cleaning products.The analysis further confirms the dominance of low skilled exports in determining comparative advantages of Sri Lankan manufacturing and its heavy concentration in textiles (i.e. six sub-sectors within textiles and garments).It also reveals that Sri Lanka has lost its competitiveness with respect to resource-based sectors such as spices, natural rubber and shell fish.In overall terms, the findings reveal the narrow and low skilled competitiveness of Sri Lankan manufacturing.Moreover, the analysis reveals that Sri Lankan competitiveness is heavily depending on labour intensive exports.It is important to note however, the analysis presented so far covers only the manufacturing sector activities.
Given the relative significance of service sector activities during the post-liberalization period, the competitiveness analysis needs to be extended to include services sector activities of the national economy.Some of the sub-sectors with high potential for enhancing competitiveness include tourism, business processing and port services.From the standard macroeconomic identity Y=C+I+G+(X-M), where Y, C, I, G, X and M are output, consumption, investment, government expenditure, exports and imports, respectively, it is clearly shown that trade-balance (X-M) is one of the sources of output growth (Y).From this point of view, the higher the earning share of a specific product in the total domestic exports, the more significant the contribution of the exported product to the domestic economy becomes.Such product can be considered as foreign exchange creators for the domestic economy.Second, from international competitive point of view, leading exported products are products that have high comparative advantage in the international market.A specific exported product becomes a leading export if its share in the total world export is dominant.It might be possible that a specific product is not significant as foreign exchange creator but it can compete internationally.
Revealed comparative advantage indices (RCA) use the trade pattern to identify the sectors in which an economy has a comparative advantage, by comparing the country of interests' trade profile with the world average.Revealed comparative advantage (RCA) is one measure of international competitiveness and has gained general acceptance in the literature (Utkulu and Seymen, 2004).It is grounded in conventional trade theory, and it measures a country's exports of a commodity relative to that of a set of countries.
The RCA index is defined as the ratio of two shares.The numerator is the share of a country's total export quantity of the commodity of interest in its total exports volume.The denominator is share of world exports quantity of the same commodity in total world exports volume.
The ratio is defined as: Where; RCAih=revealed comparative advantage ratio for country i in product h, Xih=country i's RSCAih less than zero imply that country i has comparative disadvantage in group of products h.

Trade Balance Index (TBI)
Trade Balance Index (TBI) is employed to analyze whether a country has specialization in export (as net-exporter) or in import (as net-importer) for a specific group of products (SITC).Lafay (1992) Lafay (1992) are used as the indicators of comparative advantage and of export-import activities.

Product Mapping
By using the RSCA and TBI indexes, the "products mapping" is constructed.Products can be categorized into four groups A, B, C and D as depicted in Figure 1.Source: Widodo, 2010

Figure 1: Product mapping
Group "A" consists of products, which have both comparative advantage and exportspecialization; Group "B" consists of products, which have comparative advantage but no export-specialization; Group "C" consists of products, which have export-specialization but no comparative advantage; and Group "D" consists of products, which have neither comparative advantage nor export-specialization.

Data
The  Board Economic Categories (BEC) -This is used for summarization of trade data in to meaningful enduse categories.
Therefore, out of these three classifications that SITC is available for analytical purposes as above mentioned.Hence, in this research it is selected that 3 digits SITC Revision 3 and 4

Source: Authors calculations based on UN-COMTRADE
Further, Table 6 illustrates Group A contribute to Sri Lankan exports and to world.The share of contribution to Sri Lanka export earning fluctuated within the range of 83.42 percent to 86.84 percent.There is a declining tendency of world export contribution in group A products.Thus, it is the opportunity that Sri Lanka should pursue to enhance the competitiveness and specialization of exports in those products.
The finding of confidence levels of RSCA and TBI of Group A at 95% confident level shows in Table 7.

Findings of Group B
There are 16 products in the Group B out of 260 products in 2010 (Figure 04).According to       Therefore, RSCA value for all products in the group is negative.This study, therefore, considered TBI value with respect to the RSCA value.Further, Group C contributes 3.31 percent to Sri Lankan exports and 0.0025 percent to the world in 2000.It expands to 6.11 percent to Sri Lankan export and 0.0036 percent to the world in 2005.However, Sri Lankan export and world export contribution declined to 3.89 percent and 0.0022 percent respectively in 2010.
The finding of confidence levels of RSCA and TBI of Group C at 95% confident level shows in table 12.There is a considerable increase in number of products which are comprised in the group B and C. Group B includes the products which have comparative advantage but no export specialization and group C consists with export specialization but comparative disadvantage products.Increasing the number of products in group B and C is not strengthening the competitiveness of exported products in Sri Lanka.Table 13 and 14 illustrate the products which include in group B and C throughout the period of study.Results emphasized that Tea and maté provides the highest contribution in to the Sri Lankan export income, but its TBI value is insignificance.It means that even Tea and maté is not a significant foreign income creator but it can compete in the international market.
The RSCA index for the technological items; electric power machinery, ships, boats, and motor cycles are less than unity in case of imports as well as exports throughout the period of the study.The structure of Sri Lankan exports and thereby, its economy even after thirty five years of liberalization is still a long distance away from innovation and technological advancements.
The policy makers of Sri Lanka should be focused on their higher attention for exports in Group "B" and Group "C".Because exports in Group "B" have comparative advantage but they are net importers.It means those industries shouldn't use proper strategies to increase earnings even though they have the competitiveness at the world market.Also exports in Group "C" are foreign income creators but they don't have the competitiveness in the global market.Therefore, the government should reconsider their policies on those industries.
Finally, Group "D" shows comparative disadvantage and net importers of Sri Lanka.
According to the findings of the study, 71 % products are included in this category.

(
CEP) index to seek to quantify the extent to which Turkey has a comparative advantage in the production of tomato, olive oil, and fruit juice at the EU market.The methodology used byAkhtaret al.., (2007)  in order to find out the issues facing the footwear industry regarding its competitiveness in the global perspective and its potential for growth is the Revealed Comparative Advantage (RCA).Caiet al., (2007)  also use the RCA index to measure Hawaii's comparative advantage for the 11 products, which essentially compares its competitiveness among those products.RCA indices, despite their limitations, provide a useful guidance to underlying comparative advantage and offer a further insight into the competitiveness.FertőandHubbard (2002) investigate the competitiveness of Hungarian agriculture in relation to that of the EU employing four indices of revealed comparative advantage.As stated, consistency tests implies that the indices are less satisfactory as cardinal measures, but are useful in identifying whether or not country has a comparative advantage in a particular product group.Batra and Khan (2005) make an attempt to analyze the pattern of comparative advantage for India and China at the global market.Revealed Comparative Advantage (RCA) analysis has been undertaken at both the sector and product levels.The index of RCA (RCAI) is calculated using data on exports for both India and China available from UN-COMTRADE.
Growth Rate, Future Growth 2010-2015 and the World Rank.According to their calculations Tea (Value is 75) has the highest comparative advantage in Sri Lanka.However, they prioritize KPS in the 1 st round based on contribution to total exports.Chandrasiri (2004) analyzed the inter-links between competitiveness, comparative advantages and labour utilization in the context of small open economy of Sri Lanka.In his study also employed RCA index.According to the findings of the paper, Sri Lanka's RCA is very high in low skilled exports (LSEX).It shows little sign of declining trend between 1980 and 1992, which is a common feature for many of the Asian countries.In the case of Taiwan and Thailand LSEX shows a clear sign of declining and a gradual increase in high skilled exports (HSEX).It is also clearly noticeable that Malaysia is the only country which has higher RCAs in HSEX relative to other countries.Also the study examined the dynamism of RCAs in Sri Lanka over a period of 12 years from 1980 to 1992.The assessment is based on four different types of RCAs: a) emerging comparative advantage, b) continuing comparative advantage, c) continuing comparative disadvantage and, d) declining comparative disadvantage.First, emerging comparative advantage covers two product groups from the clothing sector and continuing comparative advantage includes most of the major exports of Sri Lanka suggesting a relatively static character of comparative advantages.The third, continuing comparative disadvantage has only one product group and declining comparative disadvantage covers two low skilled exports and one high skilled product group.The paper is also an attempt to analyze the changing structure of production and implied changes in comparative advantages from 1962 to 1995.The evidence shows that during this period Sri out to produce values that cannot be compared on both sides of one,Dalumet al.,(1998)  and Laursen (1998) have made Revealed Symmetric Comparative Advantage (RSCA) index, which is formulated as follows:Dalum et al., (1998) illustrate this formula as follows:"The RSCAs fall between +1.0 and -1.0 and avoid the problem with zero values which occur in the logarithmic transformation (when an arbitrary constant is not added to the RCA).The method has got the economic advantage of attributing changes below unity (zero in this case) the same weight as changes above unity.Further, the measure is the best of the alternatives discussed with respect to normality.Data sets for more than half of the countries are normally distributed according to the Shapiro-Wilks-test."Thevalues of RSCAih index can vary from minus one to one.RSCAih greater than zero which implies that country i has comparative advantage in group of products h.In contrast, study uses the data on exports and imports published by the United Nations Commodity Trade Statistics Database (UN-COMTRADE).This database related to the UN Statistical division and provides access to information and data on International Merchandise Trade Statistics (IMTS).There are three major classifications of as follows:  Standard International Trade Classification (SITC) -This is for analytical purposes.maintainedby United Nations Statistic Division  Harmonized Commodity Description and Coding System (HS) -This is especially for tariff functionsmaintained by World Customs Organization (WCO).
Lanka.Based on the methodology of this study, 260 products are analyzed and comparison is carried out for the year 2000, 2005 and 2010.Table 02 summarizes the products included in four groups (A, B, C, and D) based on the RSCA and TBI.Based on the methodology of this study, spread of the RSCA and TBI in 260 products in 2010 shows in figure 02.Accordingly, two extreme points of the model are highly crowded.While the upper extreme point indicates the export products with higher comparative advantage and net exporter, the lower extreme point shows the export products with comparative disadvantage and net importer.Further illustration of the above figure according to the Groups A, B, C and D is discussed below.

Figure 03 :Figure 3 :
Figure 03 : RSCA and TBI of Group A

Figure 04 :Figure 3 :
Figure 04 : RSCA and TBI of Group B

Figure 05 :Figure 3 :
Figure 05 : RSCA and TBI of Group C comparative disadvantage products in Sri Lankan export product portfolio.The purpose of such an analysis was to obtain a comprehensive view of the comparative advantage that Sri Lanka enjoys compared with the rest of the world.Standard International Trade Classification (SITC) version 4 was used to compute RSCA and TBI.As per SITC classification, Tea and maté, Vegetable textile fibers, Spices, Meal and flour of wheat and flour of meslin, Women's or girls' clothes knitted or crocheted are the foremost commodities enjoying a comparative advantage in Sri Lanka.

Table 1 : Composition of exports
Source: Central Bank report-20100-2010 Balassa (1965), (2012)ighest RXA, RTA and RCA values, followed by tea, cloves, coconut and nutmeg.The United Arab Emirates, France and Germany were found to be the major export destinations for the products that are highly competitive.Mehmood et al., (2012)analyzed to identify the trade potential among major SAARC countries namely: India, Pakistan, Bangladesh and Sri Lanka.Comparative advantage has been checked by using a well-known empirical workhorse technique of Revealed Comparative Advantage (RCA)Balassa (1965)Index for the period of 2001 to 2010 and identified chemicals sector's commodities having vast potential for bilateral or multilateral trade.The results of RCA indices indicated that major SAARC countries have a strong RCA in a few products but vast potential for bilateral or multilateral trade.
Thamiem et al., (2011)analyzed the trade competitiveness of agro forestry crop sector in the country.Revealed Comparative Export Advantage (RXA), Relative Trade Advantage (RTA) and Revealed Comparative Advantage (RCA) indices were computed for 580 agro forestry products using data extracted from the trade map at the HS level 6.The 580 products were grouped into 82 categories based on the crop origin.The analysis revealed that on average, 58 products had both relative export advantage and revealed comparative advantage and 124 products had relative trade advantage at HS 6 level during 2001-2008.Among the nontraditional exports, fruit crops (avocado, papaya, citrus, pineapple, cashew, lemon and lime, guava, mango, mangosteen and durian), root crops (manioc and arrowroot), medicinal plants (ginger and turmeric), cardamom, coffee, mushroom, bamboo, vanilla, cocoa and beans were found to be competitive in the world market according to relative trade advantage index.Methodology Leading Exports: Two Points of ViewThe meaning of "leading export products" could be examined from two different points of view i.e. Trade Balance Index (TBI) and International Competitiveness which is measured by Revealed symmetric Comparative Advantage (RSCA).First, from the domestic point of view, leading exported products are meant as exported products that can give bigger amount of foreign exchange for the domestic economy.
used TBI to measure Review Comparative advantage.Recently, in 2010, TBI is used by Widodo as one of the crucial variables for analyzing the catching-up Where; TBIih denotes trade balance index of country i for group of products h; Xih and Mih represent exports and imports of group of products h by country i, respectively.Values of the index range from -1 to +1.Extremely, the TBI equals -1 if a country only imports, in contrast, the TBI equals +1 if a country only exports.Any value within -1 and +1 implies that the country exports and imports a commodity simultaneously.A country is referred to as "netimporter" in a specific group of product where the value of TBI is negative, and as "netexporter" where the value of TBI is positive.Therefore, Revealed Symmetric Comparative Advantage (RSCA) by Dalumet al.,(1998) and Laursen (1998) and Trade Balance Index (TBI) by

Table 02 : Summary of products' group
There are 29 products included in group A in 2000 and it increases to products 31 in 2005.In 2010, Sri Lanka has lost its competitiveness and export specialization in the products of; Oilseeds and oleaginous fruits (p.c 4 223), Vegetables, roots and tubers (p.c 56) and so on.Table03illustrates the products which loss the competitiveness and specialization in international market from 2000 to 2010.However, Sri Lanka is able to enhance the competitiveness and specialization of exported in the products of; Meal and flour of wheat and flour of meslin (p.c 46), Fruit, preserved, and fruit preparations (p.c 58), Tobacco (p.c 121 and 122), Natural abrasives (p.c 277), Wood manufactures (p.c.635), Ships and boats (p.c 793) and Printed matter (p.c 892) throughout the period of study.Table04displays the products which Sri Lanka preserves competitiveness and export specialization during the period of study.

Table 3 : Products loss competitiveness and specialization from 2000 to 2010
According to the model in figure03, higher comparative advantage products (top 5) are; Tea and maté, Vegetable, Textile fibers, Spices, Meal and flour of wheat and flour of meslin, Women's or girls' clothes knitted or crocheted.Tea and maté is not only the product with the highest comparative advantage but the product with the highest contribution to the exports in Sri Lanka as well.This can further be verified from the Table05.Tea and maté contribute 16.6 % to Lankan export and 0.1176 % to world (out of the total tea and maté export) in 2010.The remaining ranks of the export contribution of Sri Lanka (according to group A) however, differ from the ranking of products considering the RSCA.

Table 6 : Group A contribution
Source: Authors' calculations based on UN-COMTRADE

Table 08
, higher comparative advantage products (top 5) are residual products of the chemical or allied industries, municipal waste; sewage sludge; other wastes, Tulles, lace, embroidery, ribbons, trimmings and other small wares, Lead, Motor cycles (including mopeds) and cycles, motorized and non-motorized; invalid carriages and Feeding stuff for animals (not including unmilled cereals).

Table 10 : Results of confidence interval analysis -Group B
Out of 260 products chosen for this study, 24 products are in the Group C in 2010 (figure05).

Table 11 : Top 5 contributed products in Group C (2010)
Source: Authors' calculations based on UN-COMTRADE

Table 12 : Results of confidence interval analysis -Group C
Source: Compiled data from UN-COMTRADE

Table 14 : Products include in Group C during year 2000, 2005 and 2010
Most of the products i.e. 189 out of 260 products are in the Group D. According to the table 15, lowest comparative disadvantage products (top 5) are Miscellaneous manufactured articles, equipment for distributing electricity, vegetables, fresh, chilled, frozen or simply preserved (including dried leguminous vegetables), roots, tubers and other edible vegetable products, fresh or dried, Rice and miscellaneous chemical products.Group D contributes to Sri Lankan exports and to the world demonstrate in table 16.

Table 15 : Top 5 contributed products in Group D (2010)
Furniture and parts thereof; bedding, mattresses, mattress supports, cushions and similar stuffed furnishings 871Optical instruments and apparatus, n.e.s.The finding of confidence levels of RSCA and TBI of Group D at 95% confident level shows in table 20.