imported intermediate inputs and export diversification in ... · diversi cation of imports by...

Imported Intermediate Inputs and ExportDiversification in Low Income Countries

Felipe Benguria

University of Virginia, PhD Student

IMFMacroeconomic Challenges of Low Income Countries

January 30-31 2014

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Motivation

Should developing countries step away from specializing incommodities and diversify their exports instead?

Rodrik (2012): Unconditional Convergence in Labor Productivityin Manufacturing. Policies should reallocate resources towardsmanufacturing.

Johnson, Ostry, Subramanian (2007): episodes of sustained growthin Sub-Saharan Africa despite weak institutions and lack of macrostability are linked to expanding manufactured exports.

Hausmann, Hwang, Rodrik (2007): What you export matters.

2 / 43

Motivation

Imbs and Wacziarg (2003): Positive relationship betweendiversification and income within countries through time (in rangeof income relevant to developing countries).

World Bank’s “Can Africa claim the 21st Century” (2000) report.

3 / 43

This paper

Study role of vertical linkages in export diversification.

Use new measure of upstreamness / downstreamness (Antras et al.(2012), Fally (2011)) of exports to characterize countries’ positionin global value chains.

Study effect of trade liberalization on export and importdiversification and movements along supply chains.

Is there a link between access to intermediate inputs and exportdiversification?

4 / 43

Road Map

Trends in Export and Import Diversification, and in Movementsalong Supply Chains

Effect of Trade Liberalization on Diversification of Exports andImports, and in Position along Supply Chains.

Link between access to Imported Intermediate Inputs and ExportDiversification and Position along Supply Chains.

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Trends in Export and Import Diversification

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III.DiversificationinLowIncomeCountries’Exports.

In this section I provide a description of the evolution and diversification of the

exportsofdifferentregionsoftheworldduringtheperiod1962‐2000,withafocusonlow

incomecountriesandonSub‐SaharanAfrica.

AfirstobservationisthatAfricanexportsarehighlyconcentratedinafewproducts.

Thetopsingleproduct ‐definedasaSITC4digitcategory‐represents49%of thevalue

exportedbytheaverageSub‐SaharanAfricancountryin2000.Thesituationwasidentical

50yearsearlier.WhileAsiaandLatinAmericaalsohadveryconcentratedexportsin1962,

theyexperiencedsharpdropsinthisratio.Thetop3productsintheaverageSub‐Saharan

Africancountryrepresents71%ofthevalueexported,versus21%intheaverageadvanced

economy. These patterns are described in figures III.A. When we focus on the

manufacturingsectortheconclusionsaresimilar.Whenwelookatthenumberofproducts

exported by different countries, we see, first that the number for Sub‐Saharan Africa is

muchlowerthanthatofotherregions.Further,Sub‐SaharanAfricawastheonlyregionin

whichthisnumberdeclinedbetween1962and2000.

FigureIII.AConcentrationofExportsacrossRegions,1962‐2000

.144.105

.196.151

.472 .49

ShareofExportsfrom

topproduct

AdvancedEconomies

EastAsiaandthePacific

EuropeandCentralAsia

LatinAm.andCaribbean

MiddleEastandNorthAfrica

SouthAsia

Sub‐SaharanAfrica

1962 2000 1962 2000 1962 2000 1962 2000 1962 2000 1962 2000 1962 2000

ConcentrationofExports1962and2000

.162831

.100482

.507187

.212695.188902.184889

.433838

.256104

.473986

.301047

.561459

.217675

.552344

.444794

ShareofExportsfrom

topproduct

AdvancedEconomies

LatinAmericaandtheCaribbean

SouthAsia

Sub‐SaharanAfrica

1962 2000 1962 2000 1962 2000 1962 2000 1962 2000 1962 2000 1962 2000

ConcentrationofExportsofManufactures1962and2000

7 / 43

These initial patterns indicate that Africa’s exports have not become more

diversifiedinthelast50years.TheexperienceofhighgrowthregionssuchasEastAsiahas

beentheopposite.Itisworthnotinghoweverthatnewproducts(thosethatwerenotofa

region’sexports50yearsago)represent40%ofthevalueexportedin2000inSub‐Saharan

Africa.

.286.212

.372 .347.316

.652 .627

.723 .713

.8ShareofExportsfromtopthreeproducts

AdvancedEconomies

SouthAsia

Sub‐SaharanAfrica

1962 2000 1962 2000 1962 2000 1962 2000 1962 2000 1962 2000 1962 2000

.32566

.209836

.722917

.399609.370274

.299117

.699987

.466623

.687183

.520527

.809537

.404297

.79115

.704611

.8ShareofExportsfrom

topthreeproducts

AdvancedEconomies

SouthAsia

Sub‐SaharanAfrica

1962 2000 1962 2000 1962 2000 1962 2000 1962 2000 1962 2000 1962 2000

542.364

672.13

260.125

425.412

180.92

264.48

176.471

280.556

220.2262

145.1694.5

berofProductsExported

AdvancedEconomies

SouthAsia

Sub‐SaharanAfrica

1962 2000 1962 2000 1962 2000 1962 2000 1962 2000 1962 2000 1962 2000

ProductsExported1962and2000

353.182

590.87

163.875

392.25

374.412

113.72

228.24

244.278

87.0474.0385

NumberofProductsExported

AdvancedEconomies

SouthAsia

Sub‐SaharanAfrica

1962 2000 1962 2000 1962 2000 1962 2000 1962 2000 1962 2000 1962 2000

ProductsExportedinManufacturing1962and2000

.480088

.72077

.909201

.502213.4517

.552932

.410948

ShareofValueinNewProducts

AdvancedEconomies

SouthAsia

Sub‐SaharanAfrica

ExportsofNewProductsin2000

.503385

.75469

.910782

.583113

.786828

.587799

.489734

AdvancedEconomies

SouthAsia

Sub‐SaharanAfrica

ExportsofNewProductsinManufacturingin2000

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Africa.

.286.212

.372 .347.316

.652 .627

.723 .713

AdvancedEconomies

SouthAsia

Sub‐SaharanAfrica

1962 2000 1962 2000 1962 2000 1962 2000 1962 2000 1962 2000 1962 2000

.32566

.209836

.722917

.399609.370274

.299117

.699987

.466623

.687183

.520527

.809537

.404297

.79115

.704611

topthreeproducts

AdvancedEconomies

SouthAsia

Sub‐SaharanAfrica

1962 2000 1962 2000 1962 2000 1962 2000 1962 2000 1962 2000 1962 2000

542.364

672.13

260.125

425.412

180.92

264.48

176.471

280.556

220.2262

145.1694.5

AdvancedEconomies

SouthAsia

Sub‐SaharanAfrica

1962 2000 1962 2000 1962 2000 1962 2000 1962 2000 1962 2000 1962 2000

353.182

590.87

163.875

392.25

374.412

113.72

228.24

244.278

87.0474.0385

AdvancedEconomies

SouthAsia

Sub‐SaharanAfrica

1962 2000 1962 2000 1962 2000 1962 2000 1962 2000 1962 2000 1962 2000

.480088

.72077

.909201

.502213.4517

.552932

.410948

AdvancedEconomies

SouthAsia

Sub‐SaharanAfrica

.503385

.75469

.910782

.583113

.786828

.587799

.489734

AdvancedEconomies

SouthAsia

Sub‐SaharanAfrica

9 / 43

Africa.

.286.212

.372 .347.316

.652 .627

.723 .713

AdvancedEconomies

SouthAsia

Sub‐SaharanAfrica

1962 2000 1962 2000 1962 2000 1962 2000 1962 2000 1962 2000 1962 2000

.32566

.209836

.722917

.399609.370274

.299117

.699987

.466623

.687183

.520527

.809537

.404297

.79115

.704611

topthreeproducts

AdvancedEconomies

SouthAsia

Sub‐SaharanAfrica

1962 2000 1962 2000 1962 2000 1962 2000 1962 2000 1962 2000 1962 2000

542.364

672.13

260.125

425.412

180.92

264.48

176.471

280.556

220.2262

145.1694.5

AdvancedEconomies

SouthAsia

Sub‐SaharanAfrica

1962 2000 1962 2000 1962 2000 1962 2000 1962 2000 1962 2000 1962 2000

353.182

590.87

163.875

392.25

374.412

113.72

228.24

244.278

87.0474.0385

AdvancedEconomies

SouthAsia

Sub‐SaharanAfrica

1962 2000 1962 2000 1962 2000 1962 2000 1962 2000 1962 2000 1962 2000

.480088

.72077

.909201

.502213.4517

.552932

.410948

AdvancedEconomies

SouthAsia

Sub‐SaharanAfrica

.503385

.75469

.910782

.583113

.786828

.587799

.489734

AdvancedEconomies

SouthAsia

Sub‐SaharanAfrica

10 / 43

Theil Index

N∑i=1

)with µ =

∑Ni=1 xiN

11 / 43

Diversification of Exports by Regions, 1962 – 2000

Thereareseveralmeasuresofexportdiversification.Awidelyusedmeasureisthe

Theilindex,definedasfollows.Lowervaluesoftheindexreflecthigherdegreesof

diversification.

∑ with∑

Figure III.B shows the diversification of exports throughout the period 1962 – 2000 as

meausered by the Theil index for different regions of theworld. These figure leads to a

similarconclusioninthesensethattheexportsofSub‐saharanAfricancountriesarehighly

undiversified, and that large increases in diversification are observed for Asia and Latin

Americaoverthisperiod.

FigureIII.BDiversificationofExportsbyRegions,1962‐2000

2.062.25

1.971.98

1.441.371.56

1.781.94

3.393.173.08

2.482.43

4.124.2

1.571.591.581.591.85

2.452.312.011.98

2.933.29

2.972.9

Theilindex

EastAsia&Pacific

Europe&CentralAsia

LatinAmerica&Caribbean

MiddleEast&NorthAfrica

NorthAmerica

SouthAsia

Sub‐SaharanAfrica

19621970198019902000

DiversificationofExportsbyRegion:1962‐2000

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Diversification of Imports by Regions, 1962 – 2000

IV.DiversificationinLowIncomeCountries’Imports.

Next,Ifocusonthediversificationoftheimportsofcountriesindifferentregionsof

theworld.Asintheprevioussection,IcomputeaweightedaverageoftheTheilindexfor

eachcountrywithinregions.FigureIII.Cshowsalargeincreaseindiversification(adecline

intheindex)inEurope&CentralAsia,andSouthAsia,aswellasamoremoderateincrease

indiversificationinLatinAmericaandinSub‐SaharanAfrica.Overall,theimportsofSub‐

SaharanAfricancountriesareasdiversifiedasthoseofotherregions.

FigureIII.CDiversificationofImportsbyRegions,1962‐2000

FigureIII.Dfocusesonthediversificationofimportsofintermediateinputs.Inthiscase,it

isalsothecasethatthelevelofdiversificationofSub‐SaharanAfricancountriesissimilar

tothatofotherregionsintheworld.Themostevidentincreasesindiversificationduring

thisperiodcorrespondtoLatinAmericaandSouthAsia.

1.251.15

1.261.251.3

1.541.31

.722.915

1.341.191.151.09

2.392.21

3.253.03

1.771.87

1.511.43 1.361.291.4

1.091.07

Theilindex

EastAsia&Pacific

Europe&CentralAsia

NorthAmerica

SouthAsia

Sub‐SaharanAfrica

19621970198019902000

DiversificationofImportsbyRegion:1962‐2000

13 / 43

Diversification of Imports by Regions, 1962 – 2000. Only Intermediate Inputs

Figure III.D Diversification of Imports by Regions, 1962‐2000. Only Intermediate

Inputs.

1.21.181.39

1.161.3

1.441.44

.701.917

1.431.231.141.09

1.871.74

1.361.51.43 1.421.36

1.091.07

Theilindex

EastAsia&Pacific

Europe&CentralAsia

NorthAmerica

SouthAsia

Sub‐SaharanAfrica

19621970198019902000

DiversificationofImportsbyRegion:1962‐2000

14 / 43

Trends in Export Upstreamness/Downstreamness

15 / 43

Measuring the Position of Countries Exports alongSupply Chains

Antras et al. (2012) and Fally (2011) develop measure ofupstreamness/downstreamness that can be used to determineposition of countries in global value chains.

Measure based on input-output tables. Recursive definition:upstream industries are those that sell a large share of theiroutput to other upstream industries.

Ui = 1 +

N∑j=1

sharei→j · Uj

I use their measure based on the U.S. 2002 IO table.

Good representation of other countries and/or periods?No alternatives . . .

Some examples . . .

16 / 43

Upstreamness/Downstreamness Index. List of Most Upstream and Most

Downstream Products:

STC4 Product Upstreamness Index

7810 Passenger motor cars, for transport of pass.& goods 1.00 Most downstream8452 Dresses, skirts, suits etc, knitted or crocheted 1.028465 Corsets, brassieres, suspendres and the like 1.028952 Pens, pencils and fountain pens 1.037932 Ships, boats and other vessels 1.037931 Warships of all kinds 1.037523 Complete digital central processing units 1.047522 Complete digital data processing machines 1.047521 Analogue & hybrid data processing machines 1.047414 Refrigerators & refr.equipment, ex.household, parts 1.05

2816 Iron ore agglomerates (sinters, pellets, briquettes) 4.356821 Copper and copper alloys, refined or not, unwrought 4.356822 Copper and copper alloys, worked 4.352922 Shellac, seed lac,stick lac, resins, gum resins, etc. 4.602924 Plants,seeds, fruit used in perfumery, pharmacy 4.602320 Natural rubber latex; nat. rubber & sim. nat. gums 4.602120 Furskins, raw (includ. astrakhan, caracul, etc.) 4.606210 Materials of rubber(e.g.,pastes, plates, sheets,etc) 4.602923 Veget.mater.of a kind used primar. for plaiting 4.605112 Cyclic hydrocarbons 4.65 Most Upstream

17 / 43

FigureV.B:Trends inUpsreamness/Downstreamnessthroughtimeacrossdifferentregions.OnlyManufacturingIndustries.

1.96 1.95

2.12.21

AverageUpstreamness

AdvancedEconomies

SouthAsia

Sub‐SaharanAfrica

1962 2000 1962 2000 1962 2000 1962 2000 1962 2000 1962 2000 1962 2000

UpstreamnessinAllSectorsbetween1962and2000

2.272.13

2.37 2.322.46

2.07 2.04

2.41 2.35

AverageUpstreamness

AdvancedEconomies

SouthAsia

Sub‐SaharanAfrica

1962 2000 1962 2000 1962 2000 1962 2000 1962 2000 1962 2000 1962 2000

UpstreamnessinManufacturingbetween1962and2000

18 / 43

FigureV.B:Trends inUpsreamness/Downstreamnessthroughtimeacrossdifferentregions.OnlyManufacturingIndustries.

1.96 1.95

2.12.21

AverageUpstreamness

AdvancedEconomies

SouthAsia

Sub‐SaharanAfrica

1962 2000 1962 2000 1962 2000 1962 2000 1962 2000 1962 2000 1962 2000

UpstreamnessinAllSectorsbetween1962and2000

2.272.13

2.37 2.322.46

2.07 2.04

2.41 2.35

AverageUpstreamness

AdvancedEconomies

SouthAsia

Sub‐SaharanAfrica

1962 2000 1962 2000 1962 2000 1962 2000 1962 2000 1962 2000 1962 2000

UpstreamnessinManufacturingbetween1962and2000

19 / 43

Trade Liberalization and Diversification.

20 / 43

Does trade liberalization lead to an increase in the variety of exportedand imported products?

Country-level regressions using Wacziarg and Welch’s (2008)liberalization dates.

21 / 43

Liberalization Dates: All Countries

ber of Countries

1950 1960 1970 1980 1990 2000Year

Trade Liberalization Dates

22 / 43

Liberalization Dates: Low Income Countries

ber of Countries

1985 1990 1995 2000Year

Trade Liberalization Dates, Low Income Countries

23 / 43

Liberalization Dates: Sub-Saharan Africa

ber of Countries

1970 1980 1990 2000Year

Trade Liberalization Dates, Sub-‐Saharan Africa

24 / 43

Liberalization: Trends in Average Tariffs in Manufacturing.

Thistrendisalsoreflectedintheaveragelevelofimporttariffsofthesecountries.

FigureVI.B compares theaverage tariff level across regional and incomegroups in1994

and2007.Unfortunately,thereisnodataontariffsavailableforearlieryears.Theaverage

tariffsetbylowincomecountriesin1994wastwiceashighcomparedtotheaveragetariff

in the rest of theworld. This gap has been reduced significantly during the subsequent

decade. Countries in Sub‐Saharan Africa have experienced roughly the same

transformation.Themostimpressiveliberalizationduringthe1994‐2007periodhowever

correspondstoSouthAsia.

FigureVI.B:AverageTariffsforExportsinManufacturingIndustriesbyRegionand

byIncomeGroup,1994and2007.

berofCountries

1970 1980 1990 2000Year

TradeLiberalizationDates,Sub‐SaharanAfrica

6.3 6.514.64

129.05

10.17.6 9.11

AverageTariff(simplemean)

EastAsia&Pacific

Europe&CentralAsia

NorthAmerica

SouthAsia

Sub‐SaharanAfrica

1 2 1 2 1 2 1 2 1 2 1 2 1 2

AverageTariffinManufacturingIndustries1994and200723.2

11.512.4

LowIncomeCountries

OtherCountries

1 2 1 2

AverageTariffinManufacturingIndustries1994and2007

25 / 43

Liberalization: Trends in Average Tariffs in Manufacturing

Thistrendisalsoreflectedintheaveragelevelofimporttariffsofthesecountries.

FigureVI.B compares theaverage tariff level across regional and incomegroups in1994

and2007.Unfortunately,thereisnodataontariffsavailableforearlieryears.Theaverage

tariffsetbylowincomecountriesin1994wastwiceashighcomparedtotheaveragetariff

in the rest of theworld. This gap has been reduced significantly during the subsequent

decade. Countries in Sub‐Saharan Africa have experienced roughly the same

transformation.Themostimpressiveliberalizationduringthe1994‐2007periodhowever

correspondstoSouthAsia.

FigureVI.B:AverageTariffsforExportsinManufacturingIndustriesbyRegionand

byIncomeGroup,1994and2007.

berofCountries

1970 1980 1990 2000Year

TradeLiberalizationDates,Sub‐SaharanAfrica

6.3 6.514.64

129.05

10.17.6 9.11

EastAsia&Pacific

Europe&CentralAsia

NorthAmerica

SouthAsia

Sub‐SaharanAfrica

1 2 1 2 1 2 1 2 1 2 1 2 1 2

AverageTariffinManufacturingIndustries1994and200723.2

11.512.4

LowIncomeCountries

OtherCountries

1 2 1 2

AverageTariffinManufacturingIndustries1994and2007

26 / 43

Effect of Liberalization on the Diversification of Exports andImports: Country-level Estimation.

Diversificationct = Liberalizedct + µt + δc + εct

27 / 43

Effect of Trade Liberalization on Export Diversification

Table VIA.1 Dependent Variable: (Log) Number of Exported Products

Sample: All Countries Low Income Countries SSA

Liberalized 0.005 0.123*** 0.145***0.029 0.034 0.038

Liberalized 0.002 0.059 0.06(Standardized Coefficients)Year fixed effects Yes Yes YesCountry fixed effects Yes Yes YesNumber of Observations 4351 1439 1286R squared 0.815 0.842 0.868

28 / 43

Effect of Trade Liberalization on Export Diversification

Table VIA.2 Dependent Variable: Theil Index of Export Diversification

Liberalized - 0.208 *** - 0.022 00.025 0.04 0.045

Liberalized - 0.121 - 0.011 0(Standardized Coefficients)Year fixed effects Yes Yes YesCountry fixed effects Yes Yes YesNumber of Observations 4351 1439 1286R squared 0.738 0.781 0.761

29 / 43

Effect of Trade Liberalization on Import Diversification: All Imports

Table VIB.1 Dependent Variable: (Log) Number of Imported Products

Liberalized 0.118 *** 0.186 *** 0.157 ***0.016 0.028 0.03

30 / 43

Effect of Trade Liberalization on Import Diversification: All Imports

Table VIB.2 Dependent Variable: Theil Index of Import Diversification

Liberalized -0.091 *** -0.101 *** -0.125 ***0.018 0.033 0.034

Liberalized -0.094 -0.07 -0.084(Standardized Coefficientes)Year fixed effects Yes Yes YesCountry fixed effects Yes Yes YesNumber of Observations 4335 1438 1285R squared 0.594 0.703 0.723

31 / 43

Effect of Trade Liberalization on Import Diversification: Intermediate Inputs

Table VIC.1Dependent Variable: (Log) Number of Imported Products (Intermediate Inputs)

Liberalized 0.117*** 0.177*** 0.159***0.017 0.031 0.033

32 / 43

Effect of Trade Liberalization on Import Diversification: Intermediate Inputs

Table VIC.2

Dependent Variable: Theil Index of Import Diversification (Intermediate Inputs)

Liberalized -0.097*** -0.11*** -0.145***0.0179 0.034 0.036

Liberalized -0.097 -0.072 -0.091(Standardized Coefficients)Year fixed effects Yes Yes YesCountry fixed effects Yes Yes YesNumber of Observations 4335 1438 1285R squared 0.622 0.699 0.716

33 / 43

Trade Liberalization and Movements along SupplyChains.

34 / 43

Effect of Liberalization on ExportUpstreamness/Downstreamness: Country-level Estimation.

Upstreamness/Downstreamnessct = Liberalizedct + µt + δc + εct

35 / 43

Effect of Trade Liberalization on Upstreamness/Downstreamness

Table VI.DDependent Variable: Upstreamness/Downstreamness Index

Liberalized -0.109 *** -0.084 ** 0.0150.016 0.035 0.036

Liberalized -0.088 -0.044 0.008(Standardized Coefficients)Year fixed effects Yes Yes YesCountry fixed effects Yes Yes YesNumber of Observations 4351 1439 1286R squared 0.786 0.801 0.816

36 / 43

Input Tariffs and Export Diversification.

37 / 43

Does the increased availability of imported inputs lead toexport diversification and/or movements along supply chains?

Goldberg et al (2010) in the context of India’s trade liberalization.

Diversificationict = Input Tariffict + µt + δc + θi + εict

Upstreamness/Downstreamness Indexict = Input Tariffict + µt + δc + θi + εict

38 / 43

Measuring Tariffs on Intermediate Inputs.

Product-level tariff data from TRAINS.

Input-Output Tables from Nicita and Olarreaga’s TPP dataset(original source is GTAP).

These IO tables are homogeneous across countries and correspondto the early 1990’s.

The availability of tariff data and input-output tables restricts theset of countries I consider.

39 / 43

Countries Considered

Argentina Indonesia ThailandBolivia Mexico TurkeyChile Morocco UruguayChina Nepal VenezuelaColombia Peru South AfricaEcuador PhilippinesIndia Sri Lanka

40 / 43

Effect of Tariffs on Imported Intermediate Inputs on the Number of ExportedProducts and on the Upstreamness/Downstreamness of Exports.

Table VIIA

Upstreamness/Downstreamness Index Number of Exported Products

Input Tariff -0.007*** -0.14**0.001 0.068

Input Tariff -0.26 -0.07(Standardized Coefficients)Year fixed effects Yes YesCountry fixed effects Yes YesIndustry fixed effects Yes YesNumber of Observations 731 732R - squared 0.786 0.751

41 / 43

Conclusions.

42 / 43

High concentration of exports in low income countries.

Trade liberalization leads to increased diversification of exportsand imports, and to movements downstream along supply chains.

There is a link between access to imported intermediate inputsand export diversification.

43 / 43

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