Myth of energy competitiveness in energy producing countries

This paper examines the relative comparative advantage, focusing on energy prices, of an energy producing developing country (Indonesia) and a non-energy producing developed country (Japan). For energy producing developing countries, it is strategically important to increase the competitiveness of energy dependent industries, and encourage the development of value-added industries. Much work has been done on relative advantage analysis, but the effects of the energy price formation mechanisms on price competitiveness have not been analysed. In this paper a comprehensive approach, using production and cost functions and synchronized price formation by means of principal component analysis, is introduced. (Author)