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International Journal of Agricultural

Science and Research (IJASR)


ISSN(P): 2250-0057; ISSN(E): 2321-0087
Vol. 4, Issue 6, Dec 2014, 147-154
TJPRC Pvt. Ltd

RICE TRADE BETWEEN CAMBODIA AND THE GREATER MEKONG


SUB-REGION: THAILAND, VIETNAM AND CHINA
VIN SARETH1, XU SHIWEI2 & YUWEN3
1

Research Scholar, Agricultural Information Institute, Chinese Academy of Agricultural Sciences,

Key Laboratory of Intelligent, Agricultural Early-Warning Technology, Ministry of Agriculture, Beijing, China
2
3

Professor, Agricultural Information Institute, Chinese Academy of Agricultural Sciences, Beijing, China

Assistant Professor, Agricultural Information Institute, Chinese Academy of Agricultural Sciences, Beijing, China

ABSTRACT
This paper examines the rice trade between Cambodia and the Greater Mekong Sub-Region (GMS) countries:
Thailand, Vietnam and China based on a gravity model and time series data from 2000 to 2013. The estimations indicate
that economic size, market size, exchange rate and distance of Cambodia and the GMS countries play important role in rice
trade between Cambodia and these GMS countries. History and other dummies; however, do not seem to lead the rice
trade. The results of gravity model are also applied to calculate the rice trade potential between Cambodia and the GMS
countries. It shows that Cambodias rice trade with the GMS countries has considerable room for growth.

KEYWORDS: Rice Trade, Gravity Model, Cambodia, The Greater Mekong Sub-Region Countries
INTRODUCTION
Cambodias agricultural sector accounted for 27% of gross domestic product in 2007 and employed
approximately around 50% of total labor force, especially the poor (International Monetary Fund, 2009). However, the
sector has grown ata sluggish pace over the last decade, and trade in this sector has not contributed significantly to the
countrys total trade. Cambodias rice export to other countries within the Greater Mekong Subregion (GMS) represented
about 75% of the countrys total rice export. Vietnam has been Cambodias largest rice trading partner, followed by
Thailand and China.
Cambodias rice trade with the GMS is governed by the ASEAN Free Trade Agreement-Common Effective
Preferential Tariff for ASEAN members and the Early Harvest Program, and the agreement on trade in goods under the
ASEAN-China Free Trade Agreement for China. These agreements required Cambodia to reduce and eliminate tariff and
non-tariff barriers on agricultural products in exchange for wider market access for agricultural exports in its partners
markets. The purpose of this paper is to identify significant factors influencing the levels of rice trade between Cambodia
and the GMS countries. The findings of this paper may be served as recommendation for policy makers to improve the rice
trade between Cambodia and the GMS countries.
Gravity model has been used intensively in literature to investigate bilateral trade. Blomqvist (2004), applies
gravity model to explain the trade flow of Singapore. Montanari (2005) investigates the European Union trade with
Balkans by applying a gravity model. Countries in South East Asia Nations (ASEAN) have also been included in number
of studies used gravity model approach such as Anaman and Al-Kharusa (2003) for Bruneis trade with EU, Thomton and
Goglio (2002) for intra- trade in ASEAN. However, it appears that there are a limited number of studies applying gravity
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Vin Sareth, Xu Shiwei & Yuwen

model for the case of Cambodia. Moreover, it seems that there has not been any study of rice trade between Cambodia and
the GMS countries in a gravity model framework. This paper tried to fill the gaps in literature concerning Cambodia and
the GMS countries by using gravity model to explore the relationship between Cambodia and the GMS for the years
2000-2013. The gravity model estimated in this paper is based on panel data with pooled, random and fixed effect
estimation and allowing for suitable presentation of individual country effects.
Initiatives Aim to Boost Yields and Promote Exports
Despite Cambodias shortcomings in infrastructure, institutions, and production technology, the country has made
significant strides since the end of the Civil War. In fact, by 1999/2000, rice production had rebounded to a level not
achieved since 1970/71, and with less area. Additionally, several recent initiatives have been introduced to combat the
deficiencies mentioned above.
To bridge the research gap and improve domestic food security, the country established the Cambodian
Agricultural Research and Development Institute (CARDI) in 1999. The Institutes goals include improving crop quality,
providing producer training, and promoting crop diversification. One of CARDIs most recent initiatives addresses the
problem of low-yielding rice production. In addition to production technology deficiencies, disease, particularly blast, is an
escalating problem for the countrys rice producers. In order to understand and develop solutions to Cambodias rice
disease problems, researchers from CARDI are collaborating with researchers at the Australian Centre for International
Agricultural Research. The project is training Cambodias plant pathologists to develop in-country disease identification
and contingency plans helping to reduce disease losses and raise yields.

Source: Cambodia, Ministry of Agriculture, Fishery and Forestry2013


Figure 1: Explain Cambodia Rice Production, Consumption, Seed and Export
If CARDI is successful in raising rice yields to the same level as those of Cambodias neighbors, then Cambodia
could again become a major player in the international rice market. With rice production in 2008/09 at 4.5 million tons.
Cambodia is currently ranked 10th in the world in rice production. However, the average 2008/09 field yield of
2.75 tons per hectare was below that years global average of 4.24 tons and well below Vietnams average of 4.88 tons.
In fact, Cambodias yields have only exceeded Burmas since 2006/07, and are still less than average yields achieved in
Thailand. Both Burma and Thailand produce the bulk of their rice from natural flooding of river deltas. In contrast, most of
Vietnams rice production is irrigated, a major factor behind Vietnams higher yields.

Impact Factor (JCC): 4.3594

Index Copernicus Value (ICV): 3.0

149

Rice Trade between Cambodia and the Greater Mekong Sub-Region: Thailand, Vietnam and China

If Cambodia could raise its average field yield to 3.53 tons per hectare the same as in Laos, its production would
be on par with Pakistan, Brazil, and the United States. Since Cambodia is already self-sufficient in rice and has one of the
highest per capita consumption levels in the world, most additional rice production would likely be exported.
The Asian Development Bank has committed funds to various development initiatives throughout the Greater
Mekong Subregion (GMS), which includes Cambodia since the inception of the GMS Program in 1992. A part of these
funds is designated for constructing a transportation network that will link Phnom Penh to Vientiane in Laos, and on
further to Kunming in China through a Central and North-South Corridor. It will also link Phnom Penh with Bangkok and
Ho Chi Minh City along Southern and Southern Coastal Corridors. This proposed network would not only link Cambodia
to important regional buyers, but would also facilitate the marketing of rice for export. Cambodia already enjoys
preferential trading access, thanks to its memberships in ASEAN and the WTO in 2004.
Table 1: Increase in Rice Trade between Cambodia and the GMS Countries (MT)
Cam-Thai
Cam-Viet
Export
Import
Total
Export
Import
Total
2000
0
31295
31295
0
950
950
2001
0
31396
31396
0
1000
1000
2002
2115
47448
49563
6885
2874
9759
2003
63450
44836
108286
206550
1080
207630
2004
42300
24000
66300
137700
1253
138953
2005
76140
31710
107850
247860
1163
249023
2006
97290
30981
128271
316710
1035
317745
2007
66623
48827
115450
216886
649
217535
2008 426970
21706
448676
1390131
439
1390570
2009 473207
8869
482076
1540882
2421
1543303
2010 413474
4494
417968
1345866
31
1345897
2011 422754
4165
426919
1377719
2856
1380575
2012 479178
2826
482004
1532950
11036
1543986
2013 493322
2826
496148
1529581
2856
1532437
Source: Cambodia National Institute of Statistic 2013
Year

Export
0
0
0
0
0
0
0
0
0
0
0
0
6181
28302

Cam-China
Import
Total
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
6181
0
28302

In todays global rice trading climate, Vietnam has little capacity to expand exports, Thailands exportable
supplies are largely tied up in government stocks, and Indias export bans are still mostly in place, leaving the door open
for the return of Cambodia as a major exporter. With other exporters having limited ability to expand area and with global
yield growth negligible, Cambodia and neighboring Burma, both free of these limitations, have the ability to increase
production and pick up much of the growth in global exports.
The rice trade reorientation is perhaps the most import change on Cambodias trade pattern. In response,
Cambodia insisted on rice trade as well as looked for new rice trading partners. The correct response yielded a good
results; Cambodia has gradually built up trade relationships with hundreds of countries all over the world. Almost all of
Cambodias top trading partners in rice nowadays are from the GMS countries nearly 75% in total rice export in Cambodia
and also gradually increase annually.

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Source: Cambodia National Institute of Statistic 2013


Figure 2: Shown the Rice Trade Statistic between Cambodia and the GMS Countries 2000-2013
Empirical Model
The model applies Newtons universal law of gravitation in physics, which states that the gravitational attraction
between two objects is proportional of their masses and inversely relate to square of their distance. The gravity model is
expressed as follows:
Fij = Mi Mj / Dij2

(1)

Where: Fij is the gravitational attraction, Mi, Mj are the mass of two objects and Dij2 is the distance.
Tinbergen was first applied this gravity model to analyze international trade flows in 1962 and many others had
followed to set up a series of econometric model of bilateral trade flows. The gravity model applied in bilateral trade has
the following form (Kruman and Maurice, 2005):
Tij = A Xi Xj / Dij

(2)

Where A is a constant term, Tij is the total trade flow from origin country i to destination country j, Xi Xj are the
economic size of two country i and j. Xi Xj are usually gross domestic product (GDP) or gross national product (GNP),
Dij is the distance between two country i and j.
Among the above mentioned trade theories, the gravity model will be chosen to quantify the Cambodias rice
trade with the Greater Mekong Sub-region countries trading partners. The model applied in this paper is a variation of the
gravity model given by the Krugman and Maurice (2005). The model is augmented first by adding a financial variable,
exchange rate, which acts as a proxy for price, then by including history and population of original and target countries as
additional mass for bilateral trade. The estimated gravity model has the following form:
log (Tijt) = 0+1log (YitYjt) + 2log (NitNjt) + 3Erijt+4logDij+5His+eijt

(3)

Table 2: Variables used in Regression Model


Variables
Tijt (log)
Yit (log)
Yjt (log)
Nit (log)
Impact Factor (JCC): 4.3594

Description
Cambodia rice trade with the GMS countries in year t
Cambodia GDP in year t
The GMS countries (Thailand, Vietnam and China) GDP
in year t
The population in Cambodia in year t
Index Copernicus Value (ICV): 3.0

Rice Trade between Cambodia and the Greater Mekong Sub-Region: Thailand, Vietnam and China

Njt (log)
Erijt
Dij (log)
eijt
Border
Com-Colonizer
FTA
ASEAN

151

Table 2: Contd.,
The GMS countries population in year t
Real exchange rate between Cambodia and the GMS in
year t
The distance from Cambodia to the GMS countries
The error term
=1 if Cambodia and the GMS countries share a land border
=1 if Cambodia and the GMS had the same colonizer
=1 if the Cambodia and the GMS are in the same free trade
area in in given year
=1 if the Cambodia and the GMS are in the Association of
Southeast Asia Nation

Data Description
Data set contains annual rice trade flows, GDPs, Population, exchange rate and distance of Cambodia and three
countries among the GMS countries namely: China, Vietnam and Thailand for the time period from 2000 to 2013. Annual
rice trade (imports plus exports) figures which are taken from UN Comtrade data base. The product of GDP of Cambodia
and the trade partners were mentioned in time t is used as a measure of economic size. Gross domestic product of Thailand,
Vietnam, China and Cambodia are obtained from International Monetary Fund (IMF), both of them are in US current
dollars. Population is included in the set of variables inform of product of both parties population with the intention to
estimate the market size, another dimension to the concept country mass. The larger the market the more it trades. Data
of the GMSs population are obtained from CIAWorld Factbook.
Empirical studies have shown that exchange rate in addition to gravity equation is significant in explaining trade
variations among participating countries, Bergstrand (1985) and Dell Arccia (1999). Therefore, exchange rate will be
included as an explanatory variable in the model. The nominal exchange rate is calculated as the annual average of the
national currency unit of Cambodia per US dollar. Data of exchange rate for both trade partners are obtained from the
World Bank and Cambodia National Bank.
Distance is involved in the analysis as proxy for transportation cost between Cambodia and the GMS countries;
it is calculated by distance in kilometers between Phnom Penh, capital city of Cambodia, and the capital city of the GMS
countries. Data on distance are taken from great circle distance between capital cities (Byers, 1997) where distance is
measured as the minimum distance along the surface of the earth. The last variable is history, which comes inform of
dummy variables.

RESULTS AND DISCUSSIONS


The results from the analysis are summarized in Table 3; each column reports a different country and each row
reports a coefficient estimate and standard error, F-statistic, P-value, and other important information about the regression.
The estimation results of rice trade between Cambodia and the Greater Mekong Subregion. The columns show the results
of rice trade between Cambodia, Thailand, Vietnam and China following fixed affect method which suggested by Cheng
and Wall (2005).

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Table 3: The Regression Analysis of the Effect of Determinants on Rice Trade

lndis_ij
lny_ij
lnpop_ij

Thailand
-4.791
(0.884)**
4.063
(0.731)**
-0.135

(0.076)*
-Ex-Rate
--44.558
Constant
(15.575)*
Observe
14
R-square
0.83
* significant at 5%; ** significant at 1%

Vietnam
-15.705
(1.923)**
---0.051
(0.023)*
0.052
(0.007)**
104.029
(11.520)**
14
0.94

China
-11.225
(3.769)**
4.439
(0.541)**
---0.071
(0.023)**
-10.656
-20.018
14
0.77

Trades equation run through the methods show to be consistent estimated coefficients have nearly all the
expected signs, except history variable.
The determinants of the rice trade between Cambodia and Thailand are economic size, market size and distance
between the two countries, the real exchange rate volatility and history seem to have no effect on rice trade to these two
countries, as they are statistically insignificant. Economic size variable result to be significantly related to trade volume,
show that Cambodia tends to trade more with larger economies. An increase by 1% of Cambodias GDP and Thailands
GDP will go in increasing rice trade between them by an average 4.06%. Market size of Cambodia and Thailand have
significant effect on rice trade, market size increase by 1% the rice trade between the two countries will increase up to
0.14%. The distance of the two countries is also significant related to exportation cost, both countries Cambodia and
Thailand are neighboring countries.
The determinant of rice trade between Cambodia and Vietnam are market size, real exchange rate and distance
between the two counties, except economic size. The economic size and history seem no effect on rice trade between
Cambodia and Vietnam. Market size variable result to be significant, show that Cambodia tends to trade more to Vietnam
because of big population. An increase 1% of Cambodias population and Vietnams population will go in increasing rice
trade by 0.05% on average. The real exchange rate is significant correlation with trade variation indicating that price
competitiveness is important for rice trade between Cambodia and Vietnam, 1% depreciation of Cambodias currency will
increase rice trade about 0.05%. The distance of the two countries is also significant related to exportation cost,
both countries Cambodia and Vietnam are neighboring countries and the same ASEAN association.
The determinants of rice trade between Cambodia and China are economic size, market size, the real exchange
rate and distance, except the history. Economic size variable result to be significantly related to trade volume. An increase
by 1% of Cambodias GDP and Chinas GDP will go in increasing rice trade between them by an average 4.43%. Market
size of Cambodia and China have significant effect on rice trade, economic size and market size seem collinearrity
increasing on the rice trade between the two countries. The distance of the two countries is also significant related to
exportation cost, Cambodia and China are not neighboring countries, but distance from Cambodia to Vietnams nearly the
same Cambodia to China, the real exchange rate is significant correlation with trade variation indicating that price
Impact Factor (JCC): 4.3594

Index Copernicus Value (ICV): 3.0

153

Rice Trade between Cambodia and the Greater Mekong Sub-Region: Thailand, Vietnam and China

competitiveness is important for rice trade between Cambodia and China, 1% depreciation of Cambodias currency will
increase rice trade about 0.07%, holding other variables constant.
The finding of this paper is consistent with other empirical work in explaining bilateral trade variation using
gravity model. Economic size and market size have strong influence on trade as larger country can produce more goods
and services for export, high income together with big market size will increase the demand for importing goods.
The negative coefficient of real exchange rate on bilateral trade is also in line with other papers such as that of
DellAricaca (1999). However, it is interesting to note that the magnitude of the real exchange rate coefficient is rather
small of only 0.05, which suggests that fluctuation of exchange rate of Cambodia currency has not well-supported trade
activities in this period. This weak impact can be explained by the effect of change in exchange rate on imports and exports
are cancelling each other. On the other hand, it also shows that Cambodia exchange rate policy in recent years has not been
efficient in increasing the export product competitiveness.
The distance and history variables turn out with unexpected signs and insignificant, it may be because there are
still other unexplained variables besides the distance and history in the regression between these variables against the
country individual effects. Another reason for distance to be insignificant as suggested by Anaman and Al-Kharusi (2003)
can be due to the geographical closeness of the GMS countries.

CONCLUSIONS AND RECOMMENDATIONS


The main purpose of this paper is to find out the factors influencing the level of rice trade between Cambodia and
the GMS countries: Thailand, Vietnam and China to evaluate whether there are potential for growth in rice trade between
Cambodia and the GMS countries. In this respect, a gravity model has been used to estimate the fixed effect estimation
covering the period of 14 years from the year 2000 to 2013. The main results indicate that the rice trade flow between
Cambodia and the GMS countries are led by economic size, market size, real exchange rate volatility and distance. History
or policy seem to have no effect on rice trade between Cambodia and the GMS countries. Among these countries, rice
trade between Cambodia and China is still under potential level.
Rice trade between Cambodia and the GMS countries increases with economic size and market size implies that
economic growth of individual economies will strongly affect trade relationship. Therefore stabilization policies and
attractive trade environment which contribute to bring about the high growth rate for the country are important issues for
Cambodias policy makers.
There is a small but significant negative impact of real exchange rate on rice trade between Cambodia and the
GMS confirms that exchange rate volatility does effect on rice trade; however, its contribution to trade is quite limited,
Cambodias National Bank should manage the exchange rate movement more efficiently in order to boost rice trade.

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1.

International Monetary Fund (2009), Cambodia: Selected Issues and Statistical Appendix, Country Report No.
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Vin Sareth, Xu Shiwei & Yuwen

4.

Montanari, M, (2005), EU trade with Balkans, large room for growth? Eastern European Economics, vol.43, no1,
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Anaman, K, and Al-Kharusa, L, H, S, (2003), Analysis of trade flows between Brunei Darussalam and the
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Impact Factor (JCC): 4.3594

Index Copernicus Value (ICV): 3.0