1 C OMPETITIVENESS ANALYSIS Objectives o Analyzing potential for export growth/diversification o Ground the analysis in some sort of economic principles.

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1 C OMPETITIVENESS ANALYSIS Objectives o Analyzing potential for export growth/diversification o Ground the analysis in some sort of economic principles o Provide relevant advice to the government Practical leads for action Grounded in factual analysis Robust Slide 2 2 F OUNDATIONS OF POLICY ADVICE Governments systematically ask for guidance on o Fostering export diversification o Defining sectoral priorities (for government support) What should sector-oriented advice be based on? 1. Comparative advantage Slide 3 3 R OLAND B ERGER S ANALYSIS FOR THE M OROCCAN GOV ( I ) Governments systematically ask for guidance on o Fostering export diversification o Defining sectoral priorities (for government support) Slide 4 4 B ACK TO FIRST PRINCIPLES : R ICARDO S PRINCIPLE OF COMPARATIVE ADVANTAGE Labor productivities Endowments (here, labor forces) WineDrape Portugal845 UK1220 Economists tend to be wary of those demands: o What is the economic rationale for export diversification? Go back to first principles o What is the rationale for sectoral support/industrial policy? Why should the Government get in? o In practice, what is the record of picking winners by the government? Back to first principles: Ricardos principle of comparative advantage o Two countries (Portugal, GB) o Two sectors (wine,drape) o One production factor (labor), Slide 5 5 P ORTUGAL S COMPARATIVE ADVANTAGE Wine Drape 40 20 PPF (production. Possibility frontier) Autarky consumption point Indifference curve Slide 6 6 GB S COMPARATIVE ADVANTAGE Wine Drape 20 40 PPF Autarky consumption point Indifference curve Slide 7 7 I NTEGRATED WORLD MARKET UNDER FREE TRADE ProductionConsumption WineDrapeWineDrape Portugal40020 UK04020 Total40 Under free trade and efficient allocation of resources, countries dont diversify: they specialize according to comparative advantage Slide 8 8 M OVING TO A RESOURCE - BASED VIEW OF COMPARATIVE ADVANTAGE : H ECKSCHER -O HLIN Initial PPF Steel Effect of FDI Effect of immigration Textile Slide 9 9 T HE GAINS FROM TRADE REVISITED trade triangle Steel Textile Indifference curve Relative price on word market ( textile cheaper ) Consumption point after SA Relative autarky price Production point after structural adjustment PPF Slide 10 10 R EVEALED COMPARATIVE ADVANTAGE Balassas revealed-comparative advantage index Numerator: share of product (or sector) k in country i s exports Denominator: share of that product/sector in world exports Problem: Doesnt pick up latent comparative advantage Slide 11 11 T AKING THE THING TO THE REAL WORLD : M EASURING COUNTRY ENDOWMENTS o Human capital measured by workforces average educational attainment o Physical capital stock measured by investment updated by PIM o Arable land per worker o Subsoil natural resources stock measured in 1994 and 2000 Slide 12 12 A N ALTERNATIVE MEASURE OF COMPARATIVE ADVANTAGE Revealed capital intensity of a product: o Take all countries exporting that product o Calculate a pseudo-RCA measure for each o Take a weighted average of capital endowments using this RCA measure as weight Revealed most intensive in human capital Slide 13 13 Revealed least intensive in human capital P UTTING THE MEASURE AT WORK Slide 14 14 New products 2003-5 Deaths 2003-5 Baseline export portfolio: 1991-3 Export portfolio 2003-5 A NALYSING EXPORT PORTFOLIOS : C OSTA R ICA Slide 15 15 Intensive margin: higher volumes of existing products & destinations Export growth Extensive margin New products New destinations Sustainability margin: Survival of new products/destinations Largest contributors to export growth (across countries and time) Intensive margin New-destination margin S OURCES OF EXPORT GROWTH Slide 16 16 Most export growth is at the intensive margin Next come new destinations New products almost negligible! S OURCES OF EXPORT GROWTH : C ROSS - COUNTRY EVIDENCE Slide 17 17 A N ALTERNATIVE DECOMPOSITION OF INTENSIVE AND EXTENSIVE MARGINS Slide 18 18 Your market share in your export portfolio Weight of your export portfolio in world trade Big fish in a small pond Small fish in a big pond U NDERSTANDING THE INTENSIVE AND EXTENSIVE MARGINS Slide 19 19 A N EXTENSION TO GEOGRAPHICAL MARKETS Your market share in your destination portfolio Weight of your destination portfolio in world trade Big fish in a small pond Small fish in a big pond Slide 20 20 I NDUSTRIAL POLICY : F OUNDATIONS OF POLICY ADVICE 2. Diversification Slide 21 21 M EASURING EXPORT CONCENTRATION Herfindahl index (i = country, k = product, s ik = share of product k in i s exports) Theil index ( x ik = exports of product k by country i ) Theil index shown on vertical axis: measure of export concentration Income level shown on horizontal axis (GDP per capita) Countries first diversify, then re-concentrate Slide 22 22 E XPORT DIVERSIFICATION AT THE FIRM LEVEL Slide 23 23 I S THERE A TRADE - OFF BETWEEN EM AND IM EXPANSION ? F IRM - LEVEL EVIDENCE FROM T ANZANIA Intensive & extensive margins at the firm level Export volume and geographical concentration at the firm level Export volume and product concentration at the firm level Slide 24 24 W HY FOSTER DIVERSIFICATION ? T HE NATURAL - RESOURCE CURSE AND THE D UTCH DISEASE Slide 25 25 C OMPETITIVENESS INDICES The World Economic Forums Global Competitiveness Index The World Banks Doing Business index The World Banks Logistics Performance index Slide 26 26 S OURCES OF GROWTH The growth-accounting approach to explaining growth at the country level 1.Start from standard production function, put it in logs 2.Regress GDP on factors of production, get o Predicted value for GDP o Residual (unexplained part) 3.Take year-on year growth of both o Growth of predicted part: acumulation o Growth of unexplained part: total factor productivity growth (TFPG) Slide 27 27 P ILLARS OF GROWTH : T HE W ORLD E CONOMIC F ORUM S G LOBAL C OMPETITIVENESS I NDEX (GCI) The CGIs 12 pillars of growth Accumulation TFPG Slide 28 28 T HE GCI S SURVEY 15000 respondents in 142 countries in 2011 Survey structure I.About your company II.Overall perceptions of your economy III.Government and public institutions IV.Infrastructure V.Innovation and technology VI.Financial environment VII.Domestic competition VIII.Company operations and strategy IX.Education and human capital X.Corruption, ethics, and social responsibility XI.Travel and tourism XII.Environment XIII.Health Slide 29 29 Sampling frame o Draw large number of firms, stratified by main sector (agriculture, manufacturing, mining, services) o Stratify by firm size (large vs. small) and make two lists (one for small, one for large o Draw two separate random samples, one from each list Survey form: ad hoc (face-to-face interviews, online,) T HE GCI S SURVEY Slide 30 30 T HE INDICATOR S CONSTRUCTION Slide 31 31 S HIFTING ENGINES : F ROM ACCUMULATION TO TFPG Labor productivity growth (captial accumulation), 1971-2013 TFPG, 1971-2013 Weights Slide 32 32 THE BENCHMARK : H APPY S WITZERLAND Switzerland retains its 1st place position again this year as a result of its continuing strong performance across the board. o Switzerlands scientific research institutions are among the worlds best, and the strong collaboration between its academic and business sectors, combined with high company spending on R&D, ensures that much of this research is translated into marketable products and processes [] o Productivity is further enhanced by a business sector and a population that are proactive at adapting latest technologies, as well as by labor markets that balance employee protection with the interests of employers. o Public institutions in Switzerland are among the most effective and transparent in the world (7th). o Governance structures ensure a level playing field, enhancing business confidence; these include an independent judiciary, a strong rule of law, and a highly accountable public sector. o Competitiveness is also buttressed by excellent infrastructure (5th), wellfunctioning goods markets (5th), and highly developed financial markets (7th). o Finally, Switzerlands macroeconomic environment is among the most stable in the world (11th) Slide 33 33 P ROBLEMS IN THE BUSINESS ENVIRONMENT : S UB - S AHARAN A FRICA Slide 34 34 A N EXAMPLE : R WANDA Slide 35 35 R WANDA : D RAWBACKS OF THE BUSINESS ENVIRONMENT Slide 36 36 A N EXAMPLE : R WANDA Slide 37 37 A N EXAMPLE : R WANDA Slide 38 38 M EASURING THE BUSINESS ENVIRONMENT S COMPETITIVENESS : T HE D OING B USINESS INDICATOR Business-relevant aspects of the legal & regulatory environment Slide 39 39 A CADEMIC ATTENTION FOR THE D OING B USINESS INDICATOR Academic attention has not been tremendous: Annual # of citations of Djankov et al. since publication in the QJE: Slide 40 40 T HE DB S T RADING ACROSS BORDERS INDICATOR A standardized measure of the time and cost of import/export procedures o Customs clearance o Port/terminal handling (outbound) o Inland transportation (inbound) Slide 41 41 A N EXAMPLE OF THE DB S INFORMATION : TRADING ACROSS BORDERS FOR I NDONESIA Slide 42 42 A SSUMPTIONS OF THE T RADING ACROSS BORDERS INDICATOR Product o The traded product travels in a dry-cargo, 20-foot, full container load. It weighs 10 tons and is valued at $20,000. The product: o Is not hazardous nor does it include military items. o Does not require refrigeration or any other special environment. o Does not require any special phytosanitary or environmental safety standards other than accepted international standards. o Is one of the economys leading export or import products. Business o Has at least 60 employees. o Is located in the economys largest business city. o Is a private, limited liability company. It does not operate in an export processing zone or an industrial estate with special export or import privileges. o Is 100% domestically owned. o Exports more than 10% of its sales. Slide 43 43 M EASURING THE COST OF CUSTOMS INEFFICIENCY : A N ALTERNATIVE APPROACH DB-based literature (cross-country regressions): one-day delay = 1% ad-valorem cost Volpe Graziano (2012) o DB criteria exclude 80% of Uruguays exports o Instead, using customs data (raw transaction files) o Aggregate at firm-product-destination-year level o Construct clearance-time variable at the transaction level as clearance date minus request date; average it by firm-product-destination-year o Run DID regression of export growth at the fpdt level against customs delays also at fpdt level Result o Highly significant and negative; o One-day delay = 0.5% ad-valorem; lower than cross-country regression estimates Slide 44 44 DB COMPOSITION DB indicators and sub-indicators Slide 45 45 T HE DB INDICATOR : S OURCES OF INFORMATION Most of the DBs informants are lawyers, not business firms and numbers are very small However process involves numerous checks: o Additional informants o World Bank country offices o Country reps at the World Bank Slide 46 46 I S LESS REGULATION ALWAYS BETTER ? Less regulation is preferable across all parts of the distribution and in all countries. The ratings do not allow for a minimum desirable level of regulation needed to ensure public benefits. This principle is embedded in 7 of the 10 indicators and is especially prominent in the following 3 indicators: Employing workers: The fewer the restrictions on hours of work and the more easily a firm can lay off redundant workers, the better the ranking. The 10 top-ranked countries include 5 developed countries with high-quality labor laws, but also 5 small island states, some with inadequate labor protections. Dealing with licenses: The fewer the steps needed to get a permit to construct a building, the higher the score. Possible benefits from safety and environmental checks are not considered. Paying taxes: The lower the overall tax rate as a share of a firms profit, the higher the score. Among the 10 top-rated countries on this indicator are Maldives, Oman, Singapore, and the United Arab Emirates. Each of these has special characteristics that make it an unsuitable role model for other countries seeking an optimal level of corporate taxation. Source: Independent Evaluation Group (2008), Doing Business: An Independent Evaluation; Washington: DC: The World Bank. Slide 47 47 A FEW EXAMPLES FROM LABOR REGULATION Slide 48 48 T HE L OGISTICS PERFORMANCE INDEX Slide 49 49 T HE L OGISTICS P ERFORMANCE INDEX : S IX CORE COMPONENTS 1. The efficiency of customs and border management clearance, rated from very low (1) to very high (5) in survey question 10. 2. The quality of trade and transport infrastructure, rated from very low (1) to very high (5) in survey question 11. 3. The ease of arranging competitively priced shipments, rated from very difficult (1) to very easy (5) in survey question 12. 4. The competence and quality of logistics services, rated from very low (1) to very high (5) in survey question 13. 5. The ability to track and trace consignments, rated from very low (1) to very high (5) in survey question 14. 6. The frequency with which shipments reach consignees within scheduled or expected delivery times, rated from hardly ever (1) to nearly always (5) in survey question 15 Slide 50 50 T HE LPI METHODOLOGY o 1000 respondents around the world (143 countries) o Essentially logistics firms: Warehousing & distribution Logistics solutions Courier services Bulk cargo transport Containerized transport o 69% in developing countries o 18% large firms (more than 250 employees) o Each respondent rates eight export markets chosen with complicated sampling frame o Six components of logistics-friendliness aggregated by CPA Slide 51 51 L OGISTICS IN A FRICA Slide 52 52 A N ALTERNATIVE APPROACH TO MEASURING TRADE COSTS : T HE GRAVITY EQUATION