MEASURING EXPORT COMPETITIVENESS (MEC) DATABASE:

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1 MEASURING EXPORT COMPETITIVENESS (MEC) DATABASE: WHAT CAN WE LEARN ABOUT FRENCH COMPETITIVENESS AND THE GLOBAL CONTEXT? From a collaboraion beween Banquede France, World Bank Group, and Inernaional Trade Cenre December 16, 2015

2 THE MEASURING EXPORT COMPETITIVENESS DATABASE 1

3 METHODOLOGY A world marix of impors and expors, wih counry pair daa a he produc level Quarerly daa o beer conrol for he iming of any shocks, and we look a changes in value, volume, and prices o capure real and nominal effecs Decomposiion of expors marke share growh ino hree componens: Exporer s effec or performance: overall capaciy o expor any good o any marke The geographic srucure of expors: capaciy o expor o desinaion markes wih an increasing impor demand The secoral srucure of expors: specializaion in he expor of producs wih a dynamic global impor demand Same procedure as for expors is applied o impors, o quanify counry specific demand shocks A weighed variance analysis of annual growh raes, based on various works: Chepea, Gaulier, & Zignago (2005), Chepea, Fonagné & Zignago (2010) and Bricongne, Fonagne, Gaulier, Vicard and Taglioni (2011) 2

4 WHAT MEC TELLS ABOUT THE COMPETITIVENESS OF FRANCE

5 CHANGES IN EXPORT MARKET SHARES PROXY COMPETITIVENESS GAINS FRANCE, EXPORT GROWTH AND CHANGES IN MARKET SHARES, 2006Q1-2015Q2 4

6 BUT MARKET SHARE CHANGES CAN BE DRIVEN BY SUPPLY SIDE PUSH OR DEMAND SIDE PULL FACTORS FRANCE, DECOMPOSITION OF CHANGES IN EXPORT MARKET SHARES, 2006Q1-2015Q2 5

7 ZOOM ON THE LAST THREE YEARS FRANCE, DECOMPOSITION OF CHANGES IN EXPORT MARKET SHARES, 2012Q1-2015Q2 6

8 FRENCH SPECIALIZATION IN HIGHLY DEMANDED PRODUCTS PARTIALLY OFFSET MARKET SHARE LOSSES FRANCE, PULL FROM PRODUCT MIX AND SECTORIAL SPECIALIZATION, 2012Q1-2015Q2 11% 19% 16% 7% 7% 7% 11% 7

9 DRIVEN BY SECTORS AND PRODUCTS WITH HIGH SKILL CONTENT, WHICH HAVE HAD A DYNAMIC DEMAND SINCE 2012, UNLIKE MID- SKILL IN WHICH GERMANY SPECIALIZES FRANCE, PULL FROM PRODUCT MIX AND SECTORAL ORIENTATION, 2012Q1-2015Q2 GERMANY, PULL FROM PRODUCT MIX AND SECTORAL ORIENTATION, 2012Q1-2015Q2 33% 26% 27% 42% 8

10 BUT FRENCH EXPORT MARKET SHARES SUFFERED FROM WEAK DEMAND ON ITS MAIN IMPORTING MARKETS FRANCE, PULL FROM MARKET ORIENTATION, 2010Q1-2012Q4 FRANCE, PULL FROM MARKET ORIENTATION, 2013Q1-2015Q2 9

11 WEAK GERMAN, SPANISH AND ITALIAN DEMAND AFFECTED FRENCH MARKET SHARES BUT EURO DEVALUATION HELPED IMPORTS / DEMAND (%) - Quaniy Crisis & rebound Pos-crisis Euro Deval 08Q4-11Q2 11Q3-14Q2 14Q3-15Q2 Germany France Ialy Spain Euro Area IMPORTS / DEMAND (%) - Uni Values 10 Crisis & rebound Pos-crisis Euro Deval 08Q4-11Q2 11Q3-14Q2 14Q3-15Q2 Germany France Ialy Spain Euro Area

12 SUPPLY SIDE PUSH FACTORS SET FRANCE APART FROM NEIGHBORS, NOT BAD SPECIALIZATION THE 4 LARGE EURO AREAS ECONOMIES: ALL IN ONE CHART, 2010Q1-2015Q2 11

13 FRANCE LESS ABLE THAN NEIGHBORS TO PROFIT OF WEAK EURO, DESPITE LOWER PERFORMANCE GAP THE 4 LARGE EURO AREAS ECONOMIES: ALL IN ONE CHART, 2014Q3-2015Q2 12

14 THE MONETARY UNION MEANS THAT THERE ARE IMPORTANT PRICE COMOVEMENTS IN MARKET SHARE CHANGES ADJUSTED MARKET SHARE CORRELATIONS TOP 100 EXPORTERS (AVG. 2008Q1-2015Q2). VALUES DECOMPOSITION 13

15 POSSIBLY STRONGLY INFLUENCED BY SHARING A COMMON CURRENCY ADJUSTED MARKET SHARE CORRELATIONS TOP 100 EXPORTERS (AVG. 2008Q Q2). PRICE DECOMPOSITION 14

16 WHICH HOWEVER ALSO EXTEND TO PERFORMANCE MEASURED IN VOLUMES ADJUSTED MARKET SHARE CORRELATIONS TOP 100 EXPORTERS (AVG. 2008Q Q2). QUANTITIES DECOMPOSITION 15

17 CONCLUSION The applicaion of he daabase o France has allowed an analysis of he main drivers of French expor compeiiveness I has demysified myhs abou an unfavorable produc mix of he French expor baske, suggesing ha he main drivers of he low performance of French expors during he crisis have been supply side compeiiveness shorcomings and a weak demand from is main expor parners Findings confirm Krugman s hesis on he imporance of supporing EA demand o help EA counries o recover from he Euro Deb crisis Besides looking a counry specific analyses from wide across he world, he daabase also allows o look a sysemic issues such as he global rade slowdown. See Gaulier e al (2015), chp. 5 in Hoekman eds. The Global Trade Slowdown: A New Normal?, which finds ha: China s reinegraion in he global economy in he s had a juggernau effec on he volume and srucure of world rade The expor driven expor sraegy of China has led o price deflaion on is expor baske, and reorienaion of developed counries expors owards higher value goods and services Abou half of he curren global rade slow-down is due o a reorienaion of Chinese producion owards serving domesic demand The weakness of he demand in Europe and a levelling off of he process of global fragmenaion of producion are oher imporan reasons for he global rade slowdown 16

18 Thank you For furher informaion Daria Taglioni

19 ANNEX

20 METHODOLOGY

21 ECONOMETRIC SHIFT-SHARE SHARE DECOMPOSITION Decomposiion of expors marke share growh ino hree componens: exporer s effec or performance: overall capaciy o expor any good o any marke he geographic srucure of expors: capaciy o expor o desinaion markes wih an increasing impor demand he secoral srucure of expors: specializaion in he expor of producs wih a dynamic global impor demand Same procedure applied o impors allows o also quanify counry specific shocks A weighed variance analysis of annual growh raes, following Chepea, Gaulier, & Zignago (2005), Chepea, Fonagné & Zignago (2010) and Bricongne e al. (2011) 20 Gaulier, Sanoni, Taglioni & Zignago

22 ECONOMETRIC SHIFT-SHARE SHARE DECOMPOSITION Sep 1: Compuaion of Mid-Poin Growh Raes. For a counry i exporing a value x o a counry c of produc k a ime, he mid-poin growh rae is defined as follows: g ick = 1 2 x ick ick ( 1) ( x x ) ick x ick ( 1) 21 weigh aribued o each flow g ick is given by he relaive share of he flow in oal expors, where oal refers o he expors of he whole sample of counries: s ick = ( x x x ) x ick c i k ick x ick ( 1) c i k ick ( 1) Gaulier, Sanoni, Taglioni & Zignago

23 ECONOMETRIC SHIFT-SHARE SHARE DECOMPOSITION Sep 1: Compuaion of Mid-Poin Growh Raes. Quarer-on-quarer growh rae of he oal value of world expors is given by summing each individual flow g ick weighed by s ick : G = s c i k ick ick G is monoonically relaed o he convenional growh rae measure, and i represens a very good approximaion of he laer excep for exremely high growh raes. For bigger growh raes he wo growh measures are linked by he following ideniy: i, c, k G ick = i, c, k g ick s ick g ln i, c, k i, c, k x x ick 1 ick 22 Gaulier, Sanoni, Taglioni & Zignago

24 ECONOMETRIC SHIFT-SHARE SHARE DECOMPOSITION Sep 2: Fixed effecs regression ANOVA mehodology o decompose expor (impor) growh in a secoral effec, a geographical effec and a pure compeiiveness effec. Specifically, we regress he mid-poin growh rae on hree ses of fixed effecs, i.e. exporer, imporer and secor/produc fixed effecs, here denoed wih he leer f by means of a weighed OLS esimaion. g ick = + φi fi + βi fi + i c k α γ f + ε k k ick 23 Gaulier, Sanoni, Taglioni & Zignago

25 ECONOMETRIC SHIFT-SHARE SHARE DECOMPOSITION Sep 2: Fixed effecs regression We normalize he effecs so o quanify hem as deviaions from he average growh rae of expors (impors) for he overall sample in he daase, i.e. in our case his roughly corresponds o world expor growh. ln c, k c, k x x ick 1 ick φ i = ˆ α c, k + ˆ φ G ick i = + s + icβc c c, k g ick ˆ * s ick k s = φ + i ik ˆ γ c k s ic ~ β c + k s ik ~ γ k ~ β c = ˆ β c c s ˆ β ic c ~ γ k = ˆ γ k k s ˆ γ ik k 24 Gaulier, Sanoni, Taglioni & Zignago

26 ECONOMETRIC SHIFT-SHARE SHARE DECOMPOSITION Sep 3: Compuaion of price and quaniy effecs The decomposiion is furher exended o separae quaniy from price effecs o capure he role played by price adjusmens in he period. We follow he procedure used in Bricongne e al (2011), which uses a Tornqvis index o carry ou he decomposiion (only he inensive margin can be aken ino consideraion when disenangling price from quaniy effecs). We decompose values ino quaniies and uni values. we compue average price changes, for oal expors and vis-à-vis individual rade parners, by means of weighed averages of he elemenary price changes. Elemenary flows are decomposed as follows: d ln, ick, + d ln 1 1 ( value) = d ln( quaniy) ick value quaniy ick, 1 Uni value indices differ from price indices since heir changes may be due o price and (composiional) quaniy changes. Bias in uni value indices are aribued o changes in he mix of goods expored and o he poor qualiy of recorded daa on quaniies. More he daa is disaggregaed, more his bias is reduced. 25 Gaulier, Sanoni, Taglioni & Zignago

27 USING MEC TO ASSESS THE ROLE OF CHINA IN THE GLOBAL TRADE SLOWDOWN

28 INTERDEPENDENCES GO BEYOND THE REGIONAL SCOPE: WHAT CHINA DOES MATTERS GLOBALLY GROWTH OF GLOBAL TRADE AND GROWTH OF CHINA S ADJUSTED MARKET SHARE 15 % China - Adjused expor marke share World Trade 27

29 AND SUPPLY SIDE DEVELOPMENTS IDIOSYNCRATIC TO CHINA, NET OF OTHER EFFECTS NOT ONLY CONTRIBUTE TO EXPLAIN GLOBAL TRADE SLOWDOWN THE SUPPLY-SIDE: COUNTRIES CONTRIBUTIONS TO CHANGES IN EXPORTS, MEASURED BY ADJUSTED EXPORT MARKET SHARES, QUANTITIES Expor growh Adjused marke share Conribuion Pre-crisis Crisis & rebound Pos-crisis Pre-crisis Crisis & rebound Pos-crisis 06Q1-08Q3 08Q4-11Q2 11Q3-14Q3 06Q1-08Q3 08Q4-11Q2 11Q3-14Q3 Euro Area Unied Saes China & Honk Kong Oher developed Res of he World World THE DEMAND-SIDE: COUNTRIES CONTRIBUTIONS TO CHANGES IN IMPORTS, MEASURED BY ADJUSTED IMPORT MARKET SHARES, QUANTITIES Impor growh Adjused marke share Conribuion Pre-crisis Crisis & rebound Pos-crisis Pre-crisis Crisis & rebound Pos-crisis 06Q1-08Q3 08Q4-11Q2 11Q3-14Q3 06Q1-08Q3 08Q4-11Q2 11Q3-14Q3 Euro Area Unied Saes China & Honk Kong Oher developed Res of he World World

30 BUT ALSO INFLUENCE GLOBAL PRICES CHINA S EXPORT SPECIALIZATION AND CONTRIBUTION TO WORLD IMPORT PRICES AND VOLUMES (2006Q1-2008Q3) CHINA S EXPORT SPECIALIZATION AND CONTRIBUTION TO WORLD IMPORT PRICES AND VOLUMES (2011Q3-2015Q2) 29

31 IT IS NOT THAT CHINA SPECIALIZED IN LOW VALUE EXPORTS, BUT RATHER CHINA S SPECIALIZATION HAD A DAMPENING EFFECT ON THE WORLD PRICES OF ITS EXPORTS Trade acceleraion phase. Iniial supply-side shock when China sared exporing. Chinese domesic demand, including for is own producs, low over a prolonged period of ime and a large producion base compared o world oals Effec: China generaed a large expor surplus ha drove down he world price for goods in which i specialized; and reinforced specializaion paerns based on Ricardian comparaive advanages and he reallocaion of global demand for hose producs owards Chinese expors (ofen from domesic supply or regional expors). Trade deceleraion phase Rebalancing of Chinese growh owards domesic demand, bu coninued impors. Downward pressure on global price for producs in which China specializes is lower, and so is he rae of reallocaion of marke shares in favor of impors from China 30

2. Quantity and price measures in macroeconomic statistics 2.1. Long-run deflation? As typical price indexes, Figure 2-1 depicts the GDP deflator,

2. Quantity and price measures in macroeconomic statistics 2.1. Long-run deflation? As typical price indexes, Figure 2-1 depicts the GDP deflator, 1 2. Quaniy and price measures in macroeconomic saisics 2.1. Long-run deflaion? As ypical price indexes, Figure 2-1 depics he GD deflaor, he Consumer rice ndex (C), and he Corporae Goods rice ndex (CG)