Indonesia's Absolute Advantages: Check Out the List!

Bittime - The concept of absolute advantage (absolute advantage theory) was first introduced by Adam Smith in the 18th century as a basis for international trade. According to Smith, the welfare of a country does not depend on the amount of precious metals it owns, but on the total national income in the form of Gross Domestic Product (GDP) and the contribution of foreign trade. In this theory, a country is considered to have absolute superiority if it can produce a good or service more efficiently than other countries.

Definition of Absolute Excellence

Absolute advantage occurs when a country is able to produce goods at lower costs or in greater quantities than other countries with the same resources. Countries that have this advantage are advised to focus on the production of these goods and exchange them for other goods that are more efficiently produced by other countries.

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Indonesia's Absolute Advantage in Global Trade

Indonesia has abundant natural resources, abundant labor, and a climate that supports the production of various types of commodities. Some of the leading sectors where Indonesia has an absolute advantage include:

Agriculture and Plantation
Indonesia is one of the main producers of commodities such as palm oil, rubber, coffee and tea. Indonesia's palm oil production is the largest in the world, making it a major supplier to many countries.

Fishery
With a water area of ​​more than 3.25 million km², Indonesia has great potential in the fishing industry. Sea products such as tuna, shrimp and seaweed are leading export commodities.

Energy and Mining
Indonesia has abundant coal reserves and is one of the largest exporters in the world. Apart from that, Indonesia also has large nickel and tin reserves, making it an important player in the global mining industry.

Tourist
Indonesia's natural beauty, with tourist destinations such as Bali, Raja Ampat and Labuan Bajo, makes it one of the countries with the strongest tourism sector. Its unique culture and natural wealth provide an attraction that is difficult for other countries to compete with.

Manufacturing and Textiles
Indonesia's manufacturing industry, especially in the textile and apparel sector, is highly competitive with abundant labor and relatively lower production costs compared to several competing countries.

Examples of Application of Absolute Advantage in Trading

As an illustration, in tea and silk production between Indonesia and Malaysia:

• Indonesia is able to produce 12 kilograms of tea per worker per day, while Malaysia only produces 4 kilograms.
• Malaysia is superior in silk production with a yield of 8 meters per worker per day, while Indonesia is only able to produce 3 meters.

In free trade, Indonesia should focus on tea production and export it to Malaysia. On the other hand, Malaysia would be more optimal if it produced silk and exported it to Indonesia. This is a real form of application of the theory of absolute advantage in international trade.

Conclusion

Indonesia's absolute advantages make it an important player in international trade. By utilizing resources optimally and implementing production specialization, Indonesia can increase global competitiveness and strengthen the national economy.

FAQ

What is meant by absolute advantage?

Absolute advantage is a condition where a country can produce a good or service more efficiently than other countries.

What are some examples of Indonesia's absolute superiority?

Indonesia has advantages in the agriculture, fisheries, mining, tourism and manufacturing sectors.

How does absolute advantage play a role in international trade?

Countries that have an absolute advantage in a sector are encouraged to focus on the production of those goods and exchange them for goods that are more efficiently produced by other countries, thereby creating mutual benefits in global trade.

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Reference

Kompas.com, Absolute Advantage Theory, accessed March 17, 2025.

Author: MF