A Test of Comparative Advantage Hypothesis of the Indonesia Trade in Medium-technology Products 1 A Test of Comparative Advantage Hypothesis of the Indonesian Trade in Medium-technology Products Aditya Rangga Yogatama Student Number: 1206293732 Graduate Program in Economics, University of Indonesia Email: ytc.yoga@gmail.com Abstract This paper examines the performance of Indonesian trade. We assume that the abilities of exports can be captured by trade balance index (TBI) by Lafay (1992) and comparative advantages can be measured by revealed symmetric comparative advantage (RSCA) index by by Dalum, Laursen, and Villumsen (1998) and Laursen (1998). Using yearly SITC Rev. 3 three-digit level panel data of 1992-2012, we find that there is no Granger causality relationship between the abilities of net exports and the comparative advantages for the category of process products (MT2) and engineering products (MT3). For the category of all medium-technology products (MT), there exist one-way Granger causal relationship running from the abilities of net exports to the comparative advantages implying that the abilities of net exports do have significant effects on the comparative advantages. We conclude that the Indonesian export promotion policies are effective in developing the dynamic comparative advantages of medium-technology products (MT). Keyword: Comparative Advantage, Panel Granger Causality Test INTRODUCTION In the international trade theories, comparative advantage is an important concept fo explaining pattern of trade. The concept of comparative advantage, firstly introduced by David Ricardo in On the Principles of Political Economy and Taxation (1917), stressed that the potential gains from international trade were non confined to Adam Smith’s absolute advantage. )t is well then recognized as Ricardian Model. The principle of comparative advantage postulates that a nation will export the good or services in which it has greatest comparative advantage and import those in which it has the least comparative advantage (Ricardo, 1917). Ricardian model is focussing based on the basic assumptions that very restrictive and unrealistic: (1) each country has a fixed endowment and identical resources; (2) the factor of production are completely mobile between alternative uses within a country; (3) the factor of production are ompletely immobile externally; (4) a labor theory of value is employed in the model; (5) the level of technology is fixed for both countries; (6) unit costs of production are constant; (7) there is full employment; (8) the economy is