export structure and economic performance in developing
TRANSCRIPT
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Export structure and economic performance
in developing countries
ESCAP/ UNCTAD/ WTO/ ARTNeT
Research workshop on
Trade Diversification in the Context of Global Challenges Vientiane, Lao PDR
27-28 October 2010
Sudip Ranjan Basu*
International Trade Division
UNCTAD
*The views expressed in this presentation are those of the author and do not necessarily reflect the
views of the UNCTAD Secretariat or its members.
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Introduction
Empirical methodology, Data and Model
Results
Conclusions
Outline*
*Joint research work with Monica Das, Skidmore College, New York, USA
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Introduction
World merchandise exports by country groups (current USD trillion)
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Crisis and trade
Trillion
Trade boom
Global trade shock in technology contents by marchandise exports world(W) and south (S), % of total trade cur. $US
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Trade recession
World and South
Three groups shared evenly shocks
Emerging South grows over-exposure (Emerging and other developing countries exports to North and South)
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Source: UNCTAD
$ billions
Trade integration….
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200
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1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Lines: Emerging South Bars: Other South
Other South is relatively trading more with other South
To North
To South
To South
To North
Emerging South is relative more dependent on North
Risining Trade and Growth Nexus
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$ billions Percent
Global interdependence
Source: UNCTAD, Project LINK, Bloomberg
5.7
2.9
4.3
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7.1 6.8
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Ding_Gr US_imp ES6_exp
Recovery
Crisis begins
• Does transformation in export structure cause differential levels of economic performance across countries?
• Should the trade policymaking agenda of developing countries be directed towards building capacities and capabilities for producing skill and technologically intensive manufacturing goods with similar to those of developed countries?
• Income effects: What effects do low, medium and high-skill and technological intensive exports at the national level have on Gross Domestic Product per capita (GDPPC) in developing countries?
Technology content and income Hypothesis
• Prebisch-Singer (1950) hypothesis indicate that (trade) concentration is linked to deteriorating terms of trade, income volatility, shrinking production structure that lead to low-level equilibrium trap.
• Trade (export) diversification and skill/technology content in production process is key for developing countries to overcome domestic economic and structural bottlenecks, especially in LDCs
• Welfare impacts: economic growth and employment creations
• Sectoral implications: Depending on the institutional linkages and stages of development, welfare implications tend to be higher in high skilled/technology content industries, and new issues related to intensive and extensive margin
• Domestic economic linkages: Forward and backward linkages with domestic firms leading to a productive capacity and expand
structure
Technological improvement Trade and GDP
• Recent papers 2000 on exports strcurure, diversification, technology and GDP:
• Diversification
– Lall (2000)
– Hausman, Hwang and Rodrik (2006)
– UN DESA (2006, 2010)
– UNECA (2007)
– World Bank (2009)
– Shirotori, Tumurchudur and Cadot (2010)
– UNCTAD (2002 and 2010)
• Related influential factors
– Acemoglu et al (2001)
– Dollar and Kraay (2003)
– Rodrik (et al 2004, 2007)
– Klinger (2009)
– Basu (2008, 2010)
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From literature Growth locomotive
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Empirical methodology, Data and Model
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• Nonparametric Density Estimates
• A Generalised Kernel Estimation
• Multivatiate Statistical Estimation (PCA)
• Data/Sample: 88 developing countries: Emerging South: 24, 64 other developing countries. 45 LDCs and SIDS
• Time periods: 1995 to 2007
• Trade database
– UNCTAD South-South Trade Information System (SSTIS)
– Product Classification at HS-4 digit level at current US$
– Product categories are share of total national exports
Methodology
Key issues
• Nonparametric Density function:
• Kernel density function:
• Silverman density function:
• Identity function:
• Naive function:
• Probability function:
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Nonparametric density function Method.1
• Framework
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• Li-Racine Generalized Kernel Estimation Methodology (2004) *Estimation of bandwidth is crucial
* ‘data-driven’ numerical algorithms to determine the appropriate bandwidth or smoothing parameters for a given sample
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Generalised kernel estimation Method.2
*To fit a window-h-around every observations of the dataset and estimate relationship of interest between variables in each h * estimates regression function m(.) as well as the slope coefficients b(.) at every data point * Compared with the parametric procedures, the nonparametric methodology is more proficient in capturing non linearities in the underlying system thus dealing with the problem of model misspecification
yi is the target variable
xi the policy variable
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• Methodology of computing IQI:
-Multivariate Statistical Method of latent variable (LV) approach as proposed in Nagar
and Basu (2002), Basu, Klein and Nagar ( 2005)
-A composite weighted average measure of standardized indicators for each country for
each period defined, without scaling the final index values
-IQI is a latent variable, and linearly determined by many exogenous variables say,
X1, …, XK.
-Variation in these variables explain variation in IQI
-Weights are obtained to compute weighted average of IQI
Comparability over time and across countries :
-Using sample minimum and maximum values
-Period-wise computation of weights and indices
Higher values of IQI implies better institutional quality
Method.3 Multivariate Statistical Estimation
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• Dependent variable:
• GDPPCpenn measures real GDP per capita (international $, 2005 Constant Prices, Chain series)
• Independent variable:
• CNSEXP measures share of low skill- and technology intensive manufactures as a percentage of total merchandise exports
• DNSEXP measures share of medium skill- and technology
• ENSEXP measures share of high skill- and technology
• IQI measures institutional quality index, economic (EIQI), social (SIQI) and political (PIQI)
• CGER measures combined gross enrolment ratio
• PCRDBOFGDP measures financial sector resource availability
• WAVG measures effective foreign market access
Variables
Data
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• Core model specification:
• Core indep vars: Technology content, Institutions and Human capital
• Extended model specification:
• Ext. indep vars: financial resources and foreign market access
Model
Econometric framework
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Results
Density estimates (GDP per capita and by technology contents)
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1: PDF
Density estimates (Institutions, Educations, Finance and Market Access)
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1: PDF
Quartile estimates (developing countries, by technology contents)
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2. Core results
Median estimates (top 10 and bottom 10, by estimates responsiveness )
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Low
Top 10 elasticities
Bottom 10 elasticities
Median estimates (top 10 and bottom 10, by estimates responsiveness )
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Medium
Bottom 10 elasticities
Top 10 elasticities
Median estimates (top 10 and bottom 10, by estimates responsiveness )
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High
Top 10 elasticities
Bottom 10 elasticities
Median estimates (by Year)
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L/M/H
Median estimates (by technology contents)
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Regions
Median estimates (by technology contents)
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Emerging
Median estimates (by technology contents)
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Income group
Quartile estimates (developing countries, by technology contents)
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2: Extension
Median estimates (by technology contents)
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Regions
Median estimates (by technology contents)
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Emerging
Median estimates (by technology contents)
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Income group
Asian LDCs: Low technology (Median estimates, by core model)
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3: LDCs
+ elasticities
- elasticities
Asian LDCs: Medium technology (Median estimates, by core model)
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LDCs
+ elasticities
- elasticities
Asian LDCs: High technology (Median estimates, by core model)
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LDCs
+ elasticities
- elasticities
Total exports of LAO PDR (by technology contents, current $US)
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4: Country focus
+ elasticities
- elasticities
$ millions
Countries could use this framework and database to
initiate their own national trade policy strategies
Low technology content exports (by top 5 exports products, current $US)
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Lao PDR
+ elasticities
- elasticities
$ ‘000
Medium technology content exports (by top 5 exports products, current $US)
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Lao PDR
+ elasticities
- elasticities
$ ‘000
High technology content exports (by top 5 exports products, current $US)
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Lao PDR
+ elasticities
- elasticities
$ ‘000
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Conclusions
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• For developing countries : high skill and technology based products help stimulate a positive and significant impact on GDP per capita
•Institutional capacity building, human capital investment as well as financial sector resources and foreign market access are key policies to support export sectors
Global issues
•Regional differences remain to gain from improving skill and technology based export sectors
•African countries seem to use market access while in Asia and Americas story is different due to RTAs etc
Regional policies
•Countries export sectors vary across regions, income groups
•LDCs/SIDS need to provide more attention to improve their domestic economy to boost external sectors
•Eg. LAO PDR, lot of scope to raise their level of income by appropriately providing attention to production structure, and investment and productive capacity development
National strategies
•Global policy coordination to refrain form ‘protectionist’ trade policies, especially in sectors of low income countries
•Trade policy support and financing to augment domestic investment for harmonious economic development
What’s next?
Summary
