Trade, industrial policy, and growth: What do we know? What guidance for country work? Olivier Cadot PRMTR & University of Lausanne

Transcription

1 Trade, industrial policy, and growth: What do we know? What guidance for country work? Olivier Cadot PRMTR & University of Lausanne

2 Trade, industrial policy, and growth: What do we know? What guidance for country work? Openness and growth: Where does the debate stand? Export competitiveness: A portfolio approach Big fish in small ponds vs. small fish in big ponds: The intensive and extensive margins Risk and return Quality/technology level: The missing dimension Industrial policy is coming back Can we make sense of it? Assessing latent comparative advantage The sustainability margin Spillovers? What spillovers? Binding constraints to export growth: Taking HRV seriously Adapting the framework to export growth From natural experiments to impact evaluation Wrapping it all up: PRMTR s competitiveness toolkit

3 Part I: The debate

4 Does trade boost growth? «A contrarian view» (Young, 1993) Early, growth-accounting based approach: exports cause TFP growth Controversy over TFP measurement took steam out of argument Most firm-level research since then has suggested that high TFP causes exports, not the other way around, but exports-to-tfp causal chain is making a comeback

5 «Trade and productivity growth: What do we know?» (Edwards, 1998) Cross-country regressions of TFP growth on openness index returned positive correlation in the 80s Seminal work here is Sachs-Warner

6 «A skeptic s guide to the cross-national evidence» (Rodrik, 2001) But Rodriguez and Rodrik showed that TFP correlates much more with macro distortions and simply SSA and LAC dummies (picking up low growth in Africa and latin America) but tariffs and NTBs explain largely nothing So the debate was largely stuck.

7 «New evidence» (Wacziarg Welsh 2008) More recent evidence is more convincing Explaining income levels, not growth (less noisy) Treating reverse causality (from income to openness) more seriously (Frankel Romer 99) Exploiting panel data (Wacziarg Welsh 08) So the openness/growth debate can be considered as more or less settled and has moved on

8 From openness to productivity: understanding the linkages Essentially two channels of influence from imports to TFP Competition from imports reduces monopoly margins & inefficiency Access to imported inputs improves technology and raises efficiency The evidence so far: First channel: some effect Second: results all over the place. Why? Take into account absorptive capacity Interaction between importer status and labor skills at the firm level

9 Epilogue: The trade-tfp nexus in one picture Competitive pressure Selection Imports Higher firm-level TFP Exports Better inputs Absoptive capacity Learning Selection Learning Distribution of firm-level productivities (fictitious) Kernel density estimate Density Density x kernel = epanechnikov, bandwidth = x kernel = epanechnikov, bandwidth =

10 Part II: Export competitiveness: A portfolio approach

11 Putting concepts to work: Basic decomposition of export growth Intensive margin: higher volumes of existing products & destinations New products Export growth Extensive margin New destinations Sustainability margin: Survival of new products/destinations Largest contributors to export growth (across countries and time) Intensive margin New-destination margin

12 General pattern: diversification followed by reconcentration (at high levels of income) Along the path of income growth, countries First diversify (up to $ PPP per capita GDP) Then re-concentrate and this is true even for individual country trajectories : IRL GRC ESP GBR GDP per capita, PPP (constant 2005 international $) number of exported products # active export lines Theil index Theil index GDP per capita PPP (constant 2005 international $) Active lines - quadratic Theil index - non parametric Active lines - non parametric Theil index - quadratic

13 Intensive and extensive margins Hummels-Klenow s original formulation (product-wise) Let K i be the set of products exported by country i, XX kk ii the dollar value of i s exports of product k to the world, and XX kk WW the dollar value of world exports of product k. The (static) intensive margin is defined by HK as IIII ii = KK ii XX kk ii WW KK ii XX kk In words, the numerator is i s exports and the denominator is world exports of products that are in i s export portfolio. The extensive margin (also static) is XXXX ii = KK ii XX kk WW WW KK WW XX kk

14 Interpreting the intensive and extensive margins Your market share in your export portfolio Intensive and Extensive Margin in Products, Intensive Margin Big fish in a small pond Pakistan Vietnam Pakistan India Indonesia Vietnam India Indonesia Small fish in a big pond Extensive Margin Weight of your export portfolio in world trade

15 Interpreting the intensive and extensive margins: caveats Your market share in your export portfolio Intensive and Extensive Margin in Products, Intensive Margin Big fish in a small pond Pakistan Costa Rica Costa Rica Pakistan Small fish in a big pond Extensive Margin Weight of your export portfolio in world trade

16 Extension to geographical markets Let D i be the set of destination markets where i exports (anything from one to products it doesn t matter), X id the dollar value of i s total exports to destination d, and X Wd the dollar value of world exports to destination d (i.e. d s total imports). All these dollar values are aggregated over all goods. Intensive margin Extensive margin IIII ii = XXXX ii = DD ii XXiiii DD XX WWWW ii DD ii XXWWWW DD WW XX WWWW

17 Interpreting the intensive and extensive margins: destination markets Your market share in your destination portfolio Intensive Margin Intensive and Extensive Margin in Markets, Big fish in a small pond Indonesia India Pakistan India Vietnam Pakistan Indonesia Small fish in a big pond Vietnam Extensive Margin Weight of your destination portfolio in world trade

18 Export portfolio quality: growth orientation Take every export product, calculate its share in country s exports for a given (recent) year, call it x, and put it in logs Take the growth rate of world imports of that product over a 10-year window around the year of interest (or before that year if it is the last available), call it y Plot y against log x and draw the regression line; good if slopes upward (large export items are also the fastest growing in world trade), bad if it slopes downward Do the same thing with export destinations taking the growth of their aggregate imports Pakistan's Growth Orientation of Products in 2008 Growth Orientation of Pakistan's Destinations, 2008 Log of World Growth of Products ( ) Log of Import Growth of Countries ( ) Log of Share of Total Exports (%) Log of Destination's Share in Exports (%)

19 Agri-food product: A product-risk index and a portfolio risk-return snapshot Step 1: construct a product-level risk index using the EU s alert database (also control for initial export volume) Count of alerts Hidden protectionism Step 2: construct a risk-return profile for national agri-food export portfolios Log SPS risk coefficient Indonesia Log SPS risk coefficient India lp Better portfolio lp Better portfolio ldiffimport Log Demand growth ldiffimport Log Demand growth

20 Part III: From diagnosis to policy analysis III.1 The case for industrial policy

21 When does it make sense to «do industrial policy»? (Harrison Rodriguez-Clare 2009) Key ingredients Agglomeration effects/spillovers/scale effects Latent comparative advantage in the targeted sector Good 1 Good 1 E 1 E 1 World price line World price line PPF E 2 PPF Good 2 Good 2 Zone of increasing returns/agglomeration in the production of good 2 Targeted by IP

22 Identifying latent comparative advantage: matching national factor endowments with the factor intensities of traded goods Endowments and factor intensities Let k i = K i /L i be country i s stock of capital per worker, and let H i be a proxy for its stock of human capital, namely the average level of education of its workforce in years. These are national factor endowments. Let J i be the set of goods that country i exports. Let ωω ii jj = be Balassa s Revealed Comparative Advantage (RCA) for country i and product j. Let also I j be the set of countries that export good j. Good j s revealed intensity in capital is XX jj ii ii JJ ii XX jj Similarly, κκ jj = ωω jj ii KK ii II jj is product j s revealed intensity in human capital. h jj = ωω jj ii HH ii II jj

23 A glance at the endowment data

24 and the «revealed factor intensities»

25 Basic decomposition of export change Baseline exports Terminal exports XX 0 = XX kk0 KK 0 XX 1 = XX kk1 Decomposition of the change in total volume XX = XX + XX kk XX kk KK 0 KK 1 KK 1 KK 1 \KK 0 KK 0 \KK 1 Intensive margin New-products margin Death margin Large volume of churning: This year s new-product margin is next year s death margin Low survival of export spells at product (HS6) level: median 2 years This is why the extensive margin contributes little to growth (low survival)

26 Industrial countries (past $ at PPP) reconcentrate their exports by closing export lines that are out of tune with their endowments. Human capital Product intensities Country endowments Capital

27 Costa Rica: intensive, new-products, and death margins Human capital Baseline export portfolio: Export portfolio Revealed Human Capital Intensity Index Endowment point Revealed Physical Capital Intensity Index Deaths Physical capital Revealed Human Capital Intensity Index Revealed Physical Capital Intensity Index New products Revealed Human Capital Intensity Index Revealed Human Capital Intensity Index Revealed Physical Capital Intensity Index Revealed Physical Capital Intensity Index

28 Pakistan: intensive, new-products, and death margins Baseline export portfolio: Export portfolio Revealed Human Capital Intensity Index Revealed Human Capital Intensity Index Revealed Physical Capital Intensity Index Deaths Revealed Physical Capital Intensity Index New products Revealed Human Capital Intensity Index Revealed Human Capital Intensity Index Revealed Physical Capital Intensity Index Revealed Physical Capital Intensity Index

29 Tunisia: intensive, new-products, and death margins Baseline export portfolio: Export portfolio Revealed Human Capital Intensity Index Revealed Physical Capital Intensity Index Deaths Revealed Human Capital Intensity Index Revealed Physical Capital Intensity Index New products Revealed Human Capital Intensity Index Revealed Physical Capital Intensity Index Revealed Human Capital Intensity Index Revealed Physical Capital Intensity Index

30 Egypt: intensive, new-products, and death margins Baseline export portfolio: Export portfolio Revealed Human Capital Intensity Index Revealed Physical Capital Intensity Index Deaths Revealed Human Capital Intensity Index Revealed Physical Capital Intensity Index New products Revealed Human Capital Intensity Index Revealed Physical Capital Intensity Index Revealed Human Capital Intensity Index Revealed Physical Capital Intensity Index

31 Shooting too far away from your CA doesn t produce sustainable exports Survival of exports Length of time for which a product is exported from same origin to same destination without more than one year of interruption Typically short for developing countries (median two years) Especially so for Africa Length of trade relationship and distance to CA Length of trade relationship and distance to CA (mean) std_dist_1 (mean) length Fitted values (mean) std_dist_1 (mean) length Fitted values

32 III.2 Identifying the binding constraints

33 From trade to competitiveness to binding constraints Looks familiar?

34 Export-growth ad-hoc diagnostic: How useful as a guide? Measured outcome Experiment Syndrome XM Compare EPZ with common-law Taxation, governance Low return to investment High cost of capital IM IM, survival Evaluate effect of export promotion Estimate spillovers from firm-level data Insufficient information Coordination failure Survival Compare across products, destinations Risk IM,XM and survival Compare performance of exporters depending on source of credit Constrained access to finance Need to identify «natural experiments» (NE) to identify binding constraints A constraint that does not involve too much reverse causality/correlation with firm attributes Firms that are affected by the constraint, (if possible before and after they are affected) Firms that are not («control group», «benchmark», «counterfactual») Usually there is no clean NE, but we should at least try This involves collecting specific data over extended periods of time

35 Looking for binding constraints A few examples Information: does export promotion work? Volpe and Carvallo (2009): export promotion raises growth rate of firm exports by 17%, growth rate of # of products by 8%, and # growth rate of # of destinations by 10%. That is, %Δ# products up from 36% per year to 39.6%--modest but highly significant. Coordination failure: Does imitation discourage export entrepreneurship? Survey of MENA exporters suggests (i) «export entrepreneurs» are atypical (not traditional family owners); (ii) they welcome «competitors» (other exporters of the same product to the same destination) Iacovone et al. (2010) shows that doubling the number of Senegalese exporters of the same product to the same destination raises each firm s exports by 8%--small but highly significant positive externality. Access to finance MENA and SSA surveys suggest access to finance as the #1 binding constraint. How to probe that systematically?

36 From binding constraints to policy advice where things become difficult Export promotion works But does it call for government intervention? Need for more impact evaluation and collecting the necessary data Need to understand and evaluate the market failures Need to move from impact evaluation to cost-benefit analysis «Coordination failure» Jargon to be avoided leads easily to misinterpretation (if exporters can t coordinate, how about a marketing board?) Do exporters fail to coordinate? They don t! Access to finance Interaction between export risk, performance and access to finance illustrates broad principle that benefits of outward orientation are conditional on domestic markets working well (labor, credit) HRV framework fails to adequately deal with interaction between constraints (risk/diversification/access to credit) good policy advice requires understanding private-sector adaptation strategies