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Competitiveness analysisObjectives

Analyzing potential for export growth/diversificationGround the analysis in some sort of economic principlesProvide relevant advice to the governmentPractical leads for actionGrounded in factual analysisRobust 2

The principles: ricardoProductivitiesEndowments (here, labor forces)WineDrapePortugal845UK1220Postulats

2 countries (Portugal, GB) Two sectors (wine,drape) One production factor (labor), CRS No transport cost No government intervention (tariffs etc.) perfect competition (price = unit cost)3

Portugals opportunity setWineDrape4020PPF (production. Possibility frontier)Autarky consumption pointIndifference curve4

GBs opportunity setWineDrape2040PPFAutarky consumption pointIndifference curve5

Integrated world equilibrium under free tradeProductionConsumptionWineDrapeWineDrapePortugal4002020UK0402020Total404040406

The rybczynski theoremInitial PPFSteelEffect of FDIEffect of immigrationTextile7

The heckscher-Ohlin theoremtrade triangleSteelTextileIndifference curveRelative price on word market(textile cheaper)Consumption point after SARelative autarky priceProduction point after structural adjustmentPPF8

Country endowments: New measurement

Human capital measured by workforces average educational attainmentPhysical capital stock measured by investment updated by PIMArable land per workerSubsoil natural resources stock measured in 1994 and 20009

Human capital endowment: Morocco vs. World

Insufficient investment in education shows up through international comparisonMorocco has been investingBut the world has been moving faster10

Distribution of capital around the world becoming increasingly bi-modal:

Many countries with very little capital (less than $50000 per worker)A few with 4 times that ($200000 per worker or more)

Physical capital endowment: Morocco vs. World11

Why do industrial policy?

Justifying industrial policy requires a market failure

SynergiesImperfect information, 12

Revealed comparative advantage

Balassas revealed-comparative advantage indexNumerator: share of product (or sector) k in country is exportsDenominator: share of that product/sector in world exports

Problem: Doesnt pick up latent comparative advantage13

An alternative measure of comparative advantage

Revealed capital intensity of a product:

Take all countries exporting that productCalculate a pseudo-RCA measure for eachTake a weighted average of capital endowments using this RCA measure as weightRevealed most intensive in human capital

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Revealed least intensive in human capitalPutting the measure at work

15New products 2003-5Deaths 2003-5Baseline export portfolio: 1991-3Export portfolio 2003-5

Analysing export portfolios: Costa Rica16

Theil index shown on vertical axis: measure of export concentrationIncome level shown on horizontal axis (GDP per capita)Countries first diversify, then re-concentrateExport diversification: A general law

17Intensive margin: higher volumes of existing products & destinationsExport growthExtensive marginNew productsNew destinationsSustainability margin: Survival of new products/destinationsLargest contributors to export growth (across countries and time)Intensive marginNew-destination marginSources of export growth18

Most export growth is at the intensive marginNext come new destinationsNew products almost negligible!Sources of export growth: Cross-country evidence

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An alternative decomposition of intensive and extensive margins

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Your market share in your export portfolioWeight of your export portfolio in world tradeBig fish in a small pondSmall fish in a big pond21

An extension to geographical markets

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Your market share in your destination portfolioWeight of your destination portfolio in world tradeBig fish in a small pondSmall fish in a big pond23

Roland Bergers analysis for the Moroccan gov (i)

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blaAn example: textile industry analysis

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blaMarket analysis

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blaRecommendations in terms of export promotion (i)

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bla

Recommendations in terms of export promotion (iI)28

Program covers 2005-2009

Mixture of matching grants and technical assistance toDevelop an export activity/grow out of single-buyer relationshipsGet into new marketsExport new products455 firms had completed Famex programs at end-2009

Activities co-financed by FAMEX

Prospection: acquisition of information on foreign markets, purchase of data, or missions abroad to visit foreign exhibitions Promotion: production of marketing information (design, production and publication of ads in various media), firm representation in fairs and exhibitions, and mailings Product development: production of samples, package designFirm development: organizational issues like setting up a marketing watch, an export cell, or an export-oriented business planForeign subsidiary creation: legal, consulting, rental and salary costs for the first year of establishment.Tunisias export promotion29

Matching-DID estimator (see Heckman et al. 1998, Blundell & Costa Dias 2009):

is treatment year and wij are the weights used in the matching (kernel, NN).

Compares the change in outcomes for FAMEX firms relative to the change in outcomes for matched control firms before and after FAMEX Controls for differences in pre-treatment attributes through matching

Problem: Tunisian firms received FAMEX assistance in different years, so = (i), and calendar time matters for performanceEstimating treatment effects (i)

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One possible fix: restrict matching for treatment firm treated in (i) to controls observed in (i):Alternative: revert to a regression framework using propensity score as weights (Hirano, Imbens and Ridder 2003).

That is, estimate a simple DID equationwith unit weights for treated firms and for controls.

Estimating treatment effects (ii)31

Cumulative effects:

Disappear after 2 years for export valueRemain significant up to 5 years for # of products and destinationsExporters spreading themselves too thin?Baseline impact effectNote: All regs include firm controls and year effects32

Results vs. expectationsInitial expectationsvs. what happened33

Impact effect, by objective

Effects on primary stated objective (along diagonal) do not appear either larger or more precisely estimated; most precisely estimated effects are always on # of destinationsDummies, add up to treatment34

Impact effect, by activityEffects of prospection (getting to know) and promotion (getting known) seem most significant (suggesting informational market failure?)

Amounts Total (program) amounts disbursed by activity: See last slide

Selection correction based on PSM, i.e. corrects only for selection into the program; not into particular activity amounts35

ExternalitiesImpressive absence of resultslike Bernard & Jensen 2004. Bad proxy? Or no externalities? If anything, negative (also like B&J): poaching of managers/workers using taxpayers money?36

Estimated treatment benefitAverage annual export growth for control firms, 2004-2008: 8.35% Estimated annual export growth for treated firms in treatment year: 8.35%*1.667= 13.9%Average exports per firm in 2004: TND 2308KEstimated treated-firm exports in treatment year: TND 2308K *1.139 = TND 2629K Estimated treated-firm exports in treatment year: TND 2308K *1.083 = TND 2501K Difference attributable to treatment: TND 128.5KTreatment costAverage grant amount disbursed per Famex beneficiary: TND 21.7KTotal cost (matching grant + firm own expense) : TND 2*21.7K = TND 43.4KReturn based on impact effectOn grant: TND 128.5k additional exports for 21.7k TND (6 for 1)On total investment: TND 128.5k for 43.4k TND (3 for 1)

Is exports the right metric? Value added? Profits? A rough cost-benefit analysis37

blaAnalysis and understanding Big hits

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Your jobSumming up