Absolute and Comparative Advantages of South Australia in the Macroalgal Value Chain

Introduction

Comparative advantage was first articulated by Torrens (1815) and then formalised by Ricardo (1817) and was made into a key feature of international political economy by Mill (1848). A jurisdiction is said to have a comparative advantage in the production of a good if it can produce this good at a lower opportunity cost than another jurisdiction. A jurisdiction is said to have an absolute advantage in the production of a good if it has a higher productivity in its production of this good than another jurisdiction.

Potential sources of comparative advantage are (Chor, 2010): Geographical proximity to market; having a language in common with the market; having a shared colonial history with the market; having a regional (free) trade agreement with the market; higher relevant relative skill level in the labour force than the market and competing jurisdictions; higher relative physical capital than the market and competing jurisdictions; higher relative raw material abundance than the market and competing jurisdictions; higher access to capital funding and investment in the industry than the market and competing jurisdictions; stronger and more predictive institutional environment (in the institutional economic sense) than the market and competing jurisdictions; higher labour market flexibility than the market and competing jurisdictions. To this can be added higher levels of agglomeration economic benefits (richer and better functioning clusters) than the market and competing jurisdictions (deduced from Sölvell & Williams, 2013); higher economic complexity than the market and competing jurisdictions (deduced from Chor, 2010 combined with Hidalgo et al., 2007 operationalisation of Heckscher, 1919).

There are no studies on comparative advantages in macroalgae related value chains but there are some relating to aquaculture in general which we can assume have some bearing on the initial phases in the macroalgae value chain (e.g. Cruz-Trinidad, 1992; Ling et al., 1999; Sriboonchitta et al., 2001; Kaliba & Engle, 2003; Lee et al., 2003; Chen et al., 2006; Cai & Leung, 2008; Belton & Little, 2008; Tada & Ono, 2008; Tada & Oishi, 2011; Hanson, et al., 2013; Tada et al., 2013). From these studies, there exist two approaches for comparative advantage assessment:

• 1.

  The domestic resource costs (DRC) approach, which uses social profitability to measure comparative advantage (i.e. the higher the social profitability, the stronger the comparative advantage).

• 2.

  The revealed comparative advantage (RCA) approach, which uses observed specialisation patterns to reveal comparative advantage patterns (i.e. high specialization reveals strong comparative advantage).

Unfortunately, the application of either or both of these requires an industry that already exist, at least in part. As this is not the case in South Australia we are limited to a theoretical discussion using the principal drivers of comparative advantage as outlined above.

Key Advantages