Transcript slides competitiveness

COMPETITIVENESS ANALYSIS
Objectives
o
o
o
Analyzing potential for export growth/diversification
Ground the analysis in some sort of economic principles
Provide relevant advice to the government
 Practical leads for action
 Grounded in factual analysis
 Robust
1
FOUNDATIONS 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
2
ROLAND BERGER’S ANALYSIS FOR THE MOROCCAN GOV (I)
Governments systematically ask for guidance on
o Fostering export diversification
o Defining sectoral priorities (for government support)
3
BACK TO FIRST PRINCIPLES: RICARDO’S PRINCIPLE OF
COMPARATIVE ADVANTAGE
Economists tend to be wary of those demands:
o
o
o
What is the economic rationale for export diversification? Go back to «first
principles»
What is the rationale for sectoral support/industrial policy? Why should the
Government get in?
In practice, what is the record of «picking winners» by the government?
Back to first principles: Ricardo’s principle of comparative advantage
o
o
o
Two countries (Portugal, GB)
Two sectors (wine,drape)
One production factor (labor),
Wine
Drape
Endowments
(here, labor
forces)
Portugal
8
4
5
UK
1
2
20
Labor productivities
4
PORTUGAL’S COMPARATIVE ADVANTAGE
Wine
40
Indifference
curve
Autarky consumption point
PPF (production. Possibility
frontier)
20
Drape
5
GB’S COMPARATIVE ADVANTAGE
Wine
PPF
Autarky consumption point
20
Indifference curve
Drape
40
6
INTEGRATED WORLD MARKET UNDER FREE TRADE
Under free trade and efficient allocation of resources, countries don’t diversify:
they specialize according to comparative advantage
Production
Consumption
Wine
Drape
Wine
Drape
Portugal
40
0
20
20
UK
0
40
20
20
Total
40
40
40
40
7
MOVING TO A RESOURCE-BASED VIEW OF COMPARATIVE
ADVANTAGE: HECKSCHER-OHLIN
Steel
Effect of FDI
Initial PPF
Effect of immigration
Textile
8
THE GAINS FROM TRADE REVISITED
Production point
after structural
adjustment
Steel
Indifference curve
Relative price on word market
(textile cheaper)
Consumption
point after SA
“trade
triangle”
PPF
Textile
Relative autarky price
9
«REVEALED» COMPARATIVE ADVANTAGE
Balassa’s revealed-comparative advantage index
X ki / X i
RCA 
Xk / X
i
k
Numerator: share of product (or sector) k in country i’s exports
Denominator: share of that product/sector in world exports
Problem: Doesn’t pick up latent comparative advantage
10
TAKING THE THING TO THE REAL WORLD: MEASURING
COUNTRY ENDOWMENTS
o
o
o
o
Human capital measured by workforce’s average educational attainment
Physical capital stock measured by investment updated by PIM
Arable land per worker
Subsoil natural resources stock measured in 1994 and 2000
11
AN ALTERNATIVE MEASURE OF COMPARATIVE ADVANTAGE
Revealed capital intensity of a product:
o
o
o
Take all countries exporting that product
Calculate a pseudo-RCA measure for each
Take a weighted average of capital endowments using
this RCA measure as weight
X ki / X i
 
i  X ki / X i 
i
k
Ki
 k  i  i
L
i
k
Revealed most
intensive in
human capital
12
PUTTING THE MEASURE AT WORK
Revealed least
intensive in
human capital
13
ANALYSING EXPORT PORTFOLIOS: COSTA RICA
Baseline export portfolio: 1991-3
10
8
6
4
2
0
0
2
4
6
8
10
Revealed Human Capital Intensity Index
12
12
Export portfolio 2003-5
0
50000
100000
150000
Revealed Physical Capital Intensity Index
0
200000
50000
100000
150000
Revealed Physical Capital Intensity Index
200000
New products 2003-5
10
8
6
4
2
0
0
2
4
6
8
10
Revealed Human Capital Intensity Index
12
12
Deaths 2003-5
0
50000
100000
150000
Revealed Physical Capital Intensity Index
200000
0
50000
100000
150000
Revealed Physical Capital Intensity Index
200000
14
SOURCES 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
15
SOURCES OF EXPORT GROWTH: CROSS-COUNTRY EVIDENCE
Most export growth is at the intensive margin
Next come new destinations
New products almost negligible!
Expanding export relationships
New destinations, existing products
New products, existing destinations
New products to new destinations
Death of export relationships
Shrinking export relationships
-40
-20
0
20
40
60
80
100
120
16
AN ALTERNATIVE DECOMPOSITION OF INTENSIVE AND EXTENSIVE
MARGINS
Intensive and extensive margins
Hummels-Klenow’s original formulation (product-wise)
Let Ki be the set of products exported by country i, 𝑋𝑘𝑖 the dollar value of i’s exports of product k to the
world, and 𝑋𝑘𝑊 the dollar value of world exports of product k.
The (static) intensive margin is defined by HK as
𝐼𝑀𝑖 =
𝑋𝑘𝑖
𝑊
𝐾 𝑖 𝑋𝑘
𝐾𝑖
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
𝑋𝑀𝑖 =
𝑋𝑘𝑊
𝑊
𝐾 𝑊 𝑋𝑘
𝐾𝑖
17
UNDERSTANDING THE INTENSIVE AND EXTENSIVE MARGINS
Your market
share in your
export portfolio
1.2
Intensive and Extensive Margin in Products, 1998-08
1
Big fish in a
small pond
India
Indonesia
.8
.6
India
.4
Vietnam
Pakistan
.2
Intensive Margin
Indonesia
85
Vietnam
90
Pakistan
95
Extensive Margin
1998
2008
Small fish in
a big pond
100
Weight of your
export portfolio
in world trade
18
AN EXTENSION TO GEOGRAPHICAL MARKETS
Extension to geographical markets
Let Di be the set of destination markets where i exports (anything from one to 5’000 products—it
doesn’t matter), XiD the dollar value of i’s total exports to destination d, and XWd 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
𝑖
𝐼𝑀 =
𝐷𝑖
𝑋 𝑊𝑑
Intensive and Extensive Margin in Markets, 1998-08
1.2
𝐷𝑖
𝑋 𝑖𝑑
Your market
share in your
destination
portfolio
𝑋
𝑊𝑑
.8
.6
𝐷𝑊
𝑋 𝑊𝑑
India
Small
fish
in a
Vietnam
Pakistan
big
99.5
100pond
Vietnam
.4
𝐷𝑖
Indonesia
.2
𝑋𝑀 =
Intensive Margin
𝑖
Big fish
in aIndonesia
small
pond
India
1
Extensive margin
Pakistan
97.5
98
98.5
99
Extensive Margin
1998
2008
Weight of
your
destination
portfolio in
world trade
19
INDUSTRIAL POLICY: FOUNDATIONS OF POLICY ADVICE
2. Diversification
20
MEASURING EXPORT CONCENTRATION
Herfindahl index (i = country, k = product, sik = share of product k in i’s exports)
H i   k  sik 
2
1
ni

 xik
k
 i
  xik 
 ln  
  i 
4
2
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
6
8
Ti 
10
Theil index (xik = exports of product k by country i)
0
20000
40000
60000
GDP per capita, PPP (constant 2005 international $)
Theil index
Fitted values
80000
Theil index, Morocco
21
1
1.5
EXPORT DIVERSIFICATION AT THE FIRM LEVEL
OLS
FE
FE
Herfindahl concent. index, by product
(1)
(2)
(3)
0
.5
Estimator
Dep. Var.
5
10
15
Log export turnover
Herfindahl concentration index, by product
20
25
Log export turnover
-0.241
-0.269
-0.312
(55.68)** (36.11)** (29.61)**
Log export turnover, squared
0.009
0.010
0.012
(46.20)** (29.36)** (23.66)**
Constant
2.371
2.513
2.723
(84.42)** (55.43)** (44.06)**
Firm fixed effects
Time effects
No
Yes
Yes
Yes
Yes
Yes
Observations
R-squared
Number of firms
36'349
0.14
36'349
0.15
15'142
24'416
0.18
10'812
Fitted values
22
IS THERE A TRADE-OFF BETWEEN EM AND IM EXPANSION?
FIRM-LEVEL EVIDENCE FROM TANZANIA
Export volume and geographical
concentration at the firm level
0
10
.2
.4
15
.6
.8
20
1
Intensive & extensive margins at the
firm level
5
10
15
20
Herfindahl concentration index, by destination
5
Log export turnover
Fitted values
10
20
30
Number of export destinations served
Log of dollar sales per destination
40
50
Fitted values
0
.2
.4
.6
.8
1
Export volume and product concentration
at the firm level
0
5
10
15
20
Log export turnover
Herfindahl concentration index, by product
Fitted values
23
WHY FOSTER DIVERSIFICATION? THE NATURAL-RESOURCE
CURSE AND THE DUTCH DISEASE
24
COMPETITIVENESS INDICES
The World Economic Forum’s Global Competitiveness Index
The World Bank’s Doing Business index
The World Bank’s Logistics Performance index
25
SOURCES OF GROWTH
The growth-accounting approach to explaining growth at the country level
1. Start from standard production function, put it in logs
Yit  Kit Lit  H it 
ln Yit   ln Kit   ln Lit   ln H it 
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)
26
«PILLARS OF GROWTH»: THE WORLD ECONOMIC FORUM’S
GLOBAL COMPETITIVENESS INDEX (GCI)
The CGI’s “12 pillars of growth”
Accumulation
TFPG
27
THE GCI’S SURVEY
15’000 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
28
THE GCI’S SURVEY
Sampling frame
o
o
o
Draw large number of firms, stratified by main sector (agriculture,
manufacturing, mining, services)
Stratify by firm size (large vs. small) and make two lists (one for small, one for
large
Draw two separate random samples, one from each list
Survey form: ad hoc (face-to-face interviews, online,…)
29
THE INDICATOR’S CONSTRUCTION
30
SHIFTING ENGINES: FROM ACCUMULATION TO TFPG
Weights ω
Labor productivity growth (captial
accumulation), 1971-2013
TFPG, 1971-2013
31
THE BENCHMARK: HAPPY SWITZERLAND
Switzerland retains its 1st place position again this year as a result of its
continuing strong performance across the board.
o
o
o
o
o
o
Switzerland’s scientific research institutions are among the world’s 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 […]
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.
Public institutions in Switzerland are among the most effective and
transparent in the world (7th).
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.
Competitiveness is also buttressed by excellent infrastructure (5th),
wellfunctioning goods markets (5th), and highly developed financial markets
(7th).
Finally, Switzerland’s macroeconomic environment is among the most stable
in the world (11th)
32
PROBLEMS IN THE BUSINESS ENVIRONMENT: SUBSAHARAN AFRICA
33
AN EXAMPLE: RWANDA
34
RWANDA: DRAWBACKS OF THE BUSINESS ENVIRONMENT
35
AN EXAMPLE: RWANDA
36
AN EXAMPLE: RWANDA
37
MEASURING THE BUSINESS ENVIRONMENT’S
COMPETITIVENESS: THE DOING BUSINESS INDICATOR
Business-relevant aspects of the legal & regulatory environment
38
ACADEMIC ATTENTION FOR THE DOING BUSINESS
INDICATOR
Academic attention has not been tremendous: Annual # of citations of Djankov et
al. since publication in the QJE:
39
THE DB’S «TRADING ACROSS BORDERS» INDICATOR
A standardized measure of the time and cost of import/export procedures
o
o
o
Customs clearance
Port/terminal handling (outbound)
Inland transportation (inbound)
40
AN EXAMPLE OF THE DB’S INFORMATION: TRADING
ACROSS BORDERS FOR INDONESIA
41
ASSUMPTIONS OF THE «TRADING ACROSS BORDERS»
INDICATOR
Product
o
o
o
o
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:
Is not hazardous nor does it include military items.
Does not require refrigeration or any other special environment.
Does not require any special phytosanitary or environmental safety standards other
than accepted international standards.
Is one of the economy’s leading export or import products.
Business
o
o
o
o
o
Has at least 60 employees.
Is located in the economy’s largest business city.
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.
Is 100% domestically owned.
Exports more than 10% of its sales.
42
MEASURING THE COST OF CUSTOMS INEFFICIENCY: AN
ALTERNATIVE APPROACH
DB-based literature (cross-country regressions): one-day delay = 1% ad-valorem
cost
Volpe Graziano (2012)
DB criteria exclude 80% of Uruguay’s exports
Instead, using customs data (raw transaction files)
Aggregate at firm-product-destination-year level
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
o
o
o
o
ln X fpdt   Dfpdt   fpd   ft   pdt  u fpdt
Result
o Highly significant and negative;
o One-day delay = 0.5% ad-valorem; lower than cross-country regression
estimates
43
DB COMPOSITION
DB indicators and sub-indicators
44
THE DB INDICATOR: SOURCES OF INFORMATION
Most of the DB’s informants are lawyers, not business firms
However process involves numerous checks:
o
o
o
Additional informants
World Bank country offices
Country reps at the World Bank
and numbers are very small
45
IS 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 firm’s 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.
46
A FEW EXAMPLES FROM LABOR REGULATION
47
THE LOGISTICS PERFORMANCE INDEX
48
THE LOGISTICS PERFORMANCE INDEX: SIX 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
49
THE LPI METHODOLOGY
o
o
1000 respondents around the world (143 countries)
Essentially logistics firms:





Warehousing & distribution
Logistics solutions
Courier services
Bulk cargo transport
Containerized transport
o
o
69% in developing countries
18% large firms (more than 250 employees)
o
Each respondent rates eight export markets chosen with complicated
sampling frame
Six components of logistics-friendliness aggregated by CPA
o
50
LOGISTICS IN AFRICA
51
AN ALTERNATIVE APPROACH TO MEASURING TRADE
COSTS: THE GRAVITY EQUATION
52