Sustainability-Adjusted Gravity Model for Indonesian Nutmeg Exports: Competitiveness and SDG-Oriented Trade Planning

Indonesia remains the world’s leading producer and exporter of nutmeg, contributing approximately 60-75% of global supply, yet its export performance has been marked by persistent fluctuations over the past two decades [1]. Nutmeg holds strategic value given its applications in food, pharmaceutical, and cosmetic industries, but Indonesia’s trade growth has not matched its production strength, leaving space for competitors like Guatemala and Nepal to secure more stable market positions [2]. This paradox highlights the need to examine not only export volumes but also the structural factors shaping competitiveness and sustainability in nutmeg trade [3]. In an era where global trade is increasingly linked with sustainability, Indonesia faces both significant opportunities and systemic challenges in positioning nutmeg within resilient international markets [4].

Scholars frequently employ comparative advantage indicators such as the Revealed Comparative Advantage (RCA) and the Symmetric RCA (SRCA) to analyze competitiveness in agricultural commodities [5]. Empirical evidence suggests Indonesian nutmeg consistently records high RCA values, averaging above 17, placing it among the strongest agricultural exports worldwide [6]. However, high RCA scores do not automatically ensure trade stability, especially when inconsistencies persist in quality assurance, logistics systems, and compliance with global standards [7]. These shortcomings indicate the importance of moving beyond conventional competitiveness metrics toward frameworks that also incorporate sustainability considerations [8].

The gravity model has long been a robust framework for analyzing bilateral trade flows, relating export dynamics to economic size, distance, and structural frictions [9]. In agricultural trade, gravity models have demonstrated strong explanatory power, particularly when expanded to include variables like trade costs, exchange rates, and policy barriers [10]. Nonetheless, traditional gravity models tend to underrepresent sustainability dimensions, despite their growing relevance for commodities vulnerable to climate risks, certification requirements, and international quality standards [11]. For nutmeg in particular, overlooking sustainability-related drivers risks underestimating the impact of logistics efficiency, quality control, and macroeconomic stability on long-term competitiveness [12].

Incorporating sustainability into competitiveness assessments has become a pressing research frontier in agricultural trade [13]. Post-harvest management, aflatoxin mitigation, and adherence to sanitary and phytosanitary (SPS) measures are now recognized as central determinants of export performance in spices and similar crops [14]. Additionally, trade cost efficiency and exchange rate volatility strongly influence the ability of exporters to maintain surpluses in increasingly competitive markets [15]. However, research integrating these sustainability-oriented variables into gravity-based models remains limited and underdeveloped, particularly in the spice trade [6, 16]. This study seeks to close this gap by advancing a Sustainability-Adjusted Gravity Model (S-Gravity) tailored for Indonesian nutmeg exports.

The integration of trade analysis with the Sustainable Development Goals (SDGs) is increasingly recognized as a strategic pathway for economic planning [17]. Nutmeg production and trade intersect directly with SDG 2 (Zero Hunger) and SDG 12 (Responsible Consumption and Production), as the crop supports rural incomes while serving global consumer markets [18]. For Indonesia, embedding nutmeg exports within an SDG-oriented framework offers a way to reinforce competitiveness while promoting inclusive economic growth [4, 19]. Despite its potential, few empirical studies have explicitly linked nutmeg trade to SDG-based policy frameworks, leaving a knowledge gap with significant policy implications [20].

Previous research on Indonesian spices has largely examined descriptive trade flows, comparative advantage indices, or selected macroeconomic drivers [21]. While these studies offer valuable insights, they fall short of integrating competitiveness with sustainability dimensions in a unified model. This lack of integration means policymakers and industry actors remain limited in their ability to assess how reforms in areas such as post-harvest quality upgrading, logistics improvements, or certification systems could translate into measurable trade benefits [22]. Addressing this gap requires a more comprehensive framework that merges traditional trade analysis with sustainability imperatives.

The unique trade dynamics of nutmeg further underscore the limitations of relying solely on conventional economic indicators [23]. Importer GDP, for example, often exerts limited influence, since nutmeg demand is driven less by household consumption and more by industrial requirements. Similarly, population size is not necessarily a predictor of higher demand, reflecting nutmeg’s position as a niche and differentiated product [4]. These structural peculiarities demand the inclusion of sustainability-related variables such as competitiveness in quality upgrading and resilience in supply chains to capture the full scope of export performance [24].

The proposed S-Gravity Model expands upon the explanatory power of conventional frameworks by integrating competitiveness and sustainability dimensions [25]. Specifically, it introduces SRCA as a proxy for comparative advantage, trade cost efficiency as a measure of logistical sustainability, and exchange rate stability as an indicator of macroeconomic resilience [26]. Synthesizing these elements enables the model not only to assess trade flows but also to generate actionable insights for sustainable export planning [27]. This represents a step forward in aligning trade theory with sustainability imperatives in global commodity markets.

Ensuring that Indonesia’s nutmeg exports remain competitive while meeting sustainability demands is essential for long-term sector resilience [28]. Without such integration, the country risks losing its comparative advantage to competitors that adapt more effectively to sustainability-driven standards. Conversely, aligning competitiveness with SDG-oriented planning offers Indonesia a pathway to contribute more meaningfully to economic growth, rural development, and trade resilience [29]. Nutmeg thus emerges not only as an agricultural commodity but also as a vehicle for advancing broader sustainable development objectives.

This study, therefore, follows a sequential conceptual pathway. First, we assess Indonesia’s trade performance in nutmeg using conventional competitiveness indicators (RCA and SRCA) to establish the strength and evolution of its comparative advantage [30]. Second, we embed these competitiveness metrics into a gravity model of bilateral trade flows, where macroeconomic size, exchange rates, and trade costs capture structural determinants of exports. Third, we extend this gravity specification with sustainability-oriented structural factors competitiveness resilience (SRCA), trade cost efficiency, and exchange rate stability forming a S-Gravity framework.

It is important to note that the present study does not model SDG indicators directly within the econometric specification. Instead, the S-Gravity framework is interpreted as an input to SDG-oriented trade planning: it identifies how competitiveness and structural factors in nutmeg trade relate to SDG-relevant objectives such as food security (SDG 2), decent work and growth (SDG 8), and responsible production (SDG 12). The link to the SDGs thus operates at the level of policy interpretation rather than through explicit SDG metrics in the regression.

From this context, three research questions guide the analysis:

(1) How does the S-Gravity Model explain the competitiveness of Indonesian nutmeg exports?

(2) Which sustainability-related factors most significantly shape export performance?

(3) How can SDG-oriented trade strategies be aligned with long-term competitiveness in Indonesia’s nutmeg sector?

3.1 Competitiveness analysis of Indonesian nutmeg

The competitiveness of Indonesian nutmeg exports was initially assessed using the RCA index, which measures relative trade advantage. The RCA formula is expressed in the method section.

A value of RCA greater than one indicates the presence of comparative advantage, while higher values imply stronger competitive positions.

Table 1. RCA of major nutmeg exporting countries (2005–2024)

The RCA results confirm that Indonesia maintains a strong comparative advantage in nutmeg exports, with values consistently above 15 throughout the study period (Table 1). However, a declining trend is evident, as RCA values fell from 22.64 in 2005–2010 to 13.51 in 2021–2024. This trajectory suggests that while Indonesia remains highly competitive, its relative strength has weakened due to structural pressures such as rising trade costs, inconsistent quality assurance, and stricter compliance requirements in global markets. In comparison, Guatemala and Nepal recorded exceptionally high RCA scores, indicating their dominance in specialised export niches, while India maintained more moderate competitiveness with an average of 7.15.

The downward trend in Indonesia’s RCA warrants closer interpretation. Several strands of empirical work suggest that this erosion is linked to quality, productivity, and external shocks. First, studies on Indonesian nutmeg and spices highlight persistent issues in post-harvest handling, aflatoxin contamination, and inconsistent moisture control, which have led to rejections and stricter requirements in key markets [2, 6, 14, 23]. Second, climate variability and ageing tree stock are reported to affect yields and quality, contributing to production instability and lower exportable surpluses [4, 19]. Third, competitor countries such as Guatemala and Nepal have upgraded processing, certification, and branding, allowing them to capture higher-value market segments despite smaller production bases [4, 23]. Taken together, these factors help explain why Indonesia’s RCA has declined even though the country remains the largest global supplier: quality and reliability constraints have eroded its relative advantage vis-à-vis more specialised and quality-differentiated competitors.

To address the upward bias inherent in RCA, the SRCA index was employed. The SRCA provides a balanced measure between −1 and +1, where positive values indicate comparative advantage. Indonesia’s SRCA remained high and relatively stable at an average of 0.886 (Table 2), signalling robust competitiveness despite the downward RCA trend. Guatemala’s near-perfect SRCA of 0.997 highlights its overwhelming strength, while Nepal’s rapid rise from 0.199 in 2005–2010 to 0.997 in 2021–2024 demonstrates the ability of smaller exporters to enhance their position through quality improvements and structural reforms. Indonesia’s modest decline from 0.910 to 0.861, although less dramatic, signals increasing external pressures that could challenge long-term sustainability if left unaddressed (Figure 2).

Figure 2. Trends in Indonesia’s RCA and SRCA for nutmeg, 2005–2024

Table 2. SRCA of major nutmeg exporting countries (2005–2024)

3.2 Panel regression results

To analyze the macroeconomic and structural determinants of Indonesian nutmeg exports, a REM was estimated. The econometric specification is expressed as:

$\begin{gathered}\ln Y_{i j, t}=\alpha+\beta_1 \ln G D P_t^E+\beta_2 \ln G D P_{j, t}^I+\beta_3 \ln F X_t+\beta_4 \ln P O P_{j, t} +\beta_5 S R C A_t+\beta_6 \ln T C_{j, t}+\varepsilon_{i j, t}\end{gathered}$

The lack of statistical significance of SRCA in the REM should not be interpreted as evidence that comparative advantage is irrelevant for nutmeg exports. Methodologically, SRCA varies over time but not across partner countries, which limits its cross-sectional variation in a panel with only seven importers and reduces its power to explain bilateral differences once macroeconomic variables are controlled for. Substantively, SRCA remains highly informative in the descriptive analysis (Section 3.1), where it captures the persistence and gradual erosion of Indonesia’s specialization in nutmeg. In the S-Gravity framework, SRCA is therefore interpreted as a medium-run competitiveness and resilience indicator that interacts with trade costs and exchange rate volatility, rather than as a standalone short-run determinant of bilateral export volumes.

Table 3. Random effects estimation results (2005–2024)

The REM provides further insight into the drivers of Indonesian nutmeg exports, as shown in Table 3. Exporter GDP shows a strong and significant positive effect (0.5232), confirming that domestic production capacity is the foundation of export growth. Exchange rate depreciation also boosts export volumes (0.1754), underscoring the role of price competitiveness. However, importer population has a negative and significant effect (-0.3058), reflecting the fact that nutmeg demand does not scale with population size but with industrial demand and niche consumption patterns.

Interestingly, SRCA shows a large positive coefficient (2.2444) but is not statistically significant. This suggests that comparative advantage alone cannot sustain exports without structural and sustainability support, such as efficient logistics, post-harvest quality control, and certification mechanisms. Trade costs also appear with a positive but insignificant effect, highlighting inefficiencies in Indonesia’s logistics and trade facilitation systems. The model explains most of the variation in exports with an R² value of 0.356, indicating moderate explanatory power for the selected variables.

The positive sign of the trade cost variable, although statistically insignificant, merits comment. The bilateral trade cost proxy employed in this study is derived from ESCAP World Bank bilateral trade cost database and is a composite index that reflects overall trade facilitation and market access conditions. Higher index values therefore correspond to more efficient trade environments rather than higher costs. Under this definition, the positive coefficient aligns with the expectation that more favorable trade conditions support larger export volumes. Nonetheless, the composite nature of the indicator raises the possibility of measurement error and endogeneity (e.g., countries with higher trade volumes may also invest more in trade facilitation). We therefore interpret this coefficient cautiously and emphasize the need for future work to disentangle trade policy, logistics performance, and reverse causality using more granular or instrumental-variable approaches.

3.3 Country-level effects

The REM also provided country-specific intercepts that reveal heterogeneity among Indonesia’s export destinations.

Table 4. Country intercept effects for nutmeg exports

Table 4 shows that the country-specific intercepts reveal clear heterogeneity across Indonesia’s main export destinations. Vietnam emerges as the most responsive and strategically vital partner, reflecting both its role as a major consumer and as a re-export hub that processes nutmeg into higher value derivatives for redistribution. India and the Netherlands follow, driven by sustained industrial demand for raw and semi-processed nutmeg. Germany and Italy show moderate intercepts, reflecting quality-sensitive markets with stringent standards, while Japan and the United States present lower intercepts, highlighting their role as smaller but premium-oriented markets.

Vietnam stands out with the highest intercept (14.863) as shown on Figure 3, underscoring its role as both a consumer and a re-export hub where raw nutmeg is processed into higher value derivatives. India and the Netherlands follow closely, reflecting their strong industrial demand. Germany and Italy show moderate intercepts, highlighting regulation-driven but stable demand in European markets. In contrast, Japan and the United States record the lowest intercepts, pointing to smaller but premium-oriented markets.

Figure 3. Country intercept effects for Indonesian nutmeg exports

These findings suggest that Indonesia must pursue differentiated trade strategies. For volume-driven markets such as Vietnam and India, efficiency improvements in logistics and bulk trade are essential. In contrast, European markets demand strict compliance with food safety, traceability, and organic certification. Japan and the United States offer opportunities for premium branding and value-added nutmeg products, such as oils and oleoresins. Recognizing these differences ensures that policy interventions are not generalized, but instead tailored to the distinct requirements of each market.

3.4 Discussion

The integration of competitiveness measures and panel regression analysis yields three critical insights that are highly relevant for both trade theory and practice. First, the findings show that competitiveness alone, as measured by RCA and SRCA, does not guarantee export growth. Although Indonesia consistently records a strong comparative advantage, the regression results reveal that SRCA is not statistically significant in driving export volumes. This aligns with previous studies indicating that competitiveness must be accompanied by structural reforms such as quality certification, logistics improvements, and compliance with global standards to achieve sustained export performance [6]. The results therefore emphasize that competitiveness must be contextualized within sustainability-oriented trade strategies [13, 17].

Second, macroeconomic drivers such as exporter GDP and exchange rates emerge as decisive factors shaping Indonesian nutmeg exports. The positive role of GDP reflects that expanding domestic production capacity remains central to sustaining export growth. Similarly, the significant positive impact of exchange rate depreciation shows that price competitiveness continues to matter in global spice markets. These findings are consistent with earlier work demonstrating that macroeconomic stability, production scale, and exchange rate dynamics play crucial roles in determining agricultural export competitiveness [16, 23]. Hence, strengthening Indonesia’s nutmeg sector requires a balanced focus on both domestic capacity-building and macroeconomic policy stability.

Third, the heterogeneity revealed by country-specific intercepts underscores the importance of differentiated market strategies. Vietnam, with the highest intercept, illustrates its role not only as a consumer market but also as a re-export hub, which mirrors evidence from studies highlighting Southeast Asia’s growing role in global spice redistribution [19, 21]. India and the Netherlands also stand out as key destinations driven by industrial demand, while Germany and Italy reflect quality-sensitive European markets. In contrast, Japan and the United States represent niche but premium-oriented markets, consistent with research suggesting that developed economies increasingly prioritize certification, traceability, and branding in agricultural imports [20, 27]. This heterogeneity highlights the need for Indonesian exporters to adopt market-specific approaches rather than one-size-fits-all strategies.

From a broader perspective, the findings demonstrate that competitiveness and sustainability must be viewed as complementary, not separate, dimensions of trade planning. Previous literature emphasizes that without sustainable practices such as post-harvest improvements, eco-certification, and supply chain traceability, comparative advantage in commodities like spices can erode rapidly [28]. Empirical work on spatial price integration and asymmetric adjustment in red shallot markets between rural and urban areas in North Sumatra similarly shows that market efficiency, if not aligned with smallholder resilience, can generate uneven welfare outcomes and undermine rural sustainability [31]. Related evidence from integrated agriculture in Southeast Aceh also indicates that strengthening rural economies requires aligning commodity value chains with broader regional planning and sustainability objectives [32]. Indonesia’s nutmeg sector thus faces a dual challenge: maintaining its global market share while adapting to increasingly stringent sustainability requirements, in a way that also supports rural livelihoods and territorial development. This underscores the potential of the S-Gravity to provide policymakers with a tool that links macroeconomic, competitiveness, and sustainability variables into one coherent framework.