Trade and Employment From Myths to Facts - International Labour ...

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Chapter 7: Trade diversification: Drivers and impacts 7.2.2 Trade-expansion margins Recent research on trade diversification distinguishes evolution at the intensive and extensive margins. In summary, by focusing on the intensive margins one relates to changes in diversification among a set of goods that are commonly traded over the period. In contrast, by looking at the extensive margin one takes account of the effect of newly traded (or disappearing) goods on diversification. More specifically, export concentration measured at the intensive margin reflects inequality between the shares of active export lines. 2 Conversely, diversification at the intensive margin during a period t 0 to t 1 means convergence in export shares among goods that were exported at t 0. Concentration at the extensive margin is a subtler concept. At the simplest, it can be taken to mean a small number of active export lines. Then, diversification at the extensive margin means a rising number of active export lines. This is a widely used notion of the extensive margin (in differential form), and the decomposition of Theil’s index can be usefully mapped into the intensive and extensive margins thus defined. Suppose that, for a given country and year, we partition the 5,000 or so lines making up the HS6 nomenclature into two groups: group “one” is made of active export lines for this country and year, and group “zero” is made of inactive export lines (i.e. export lines for which there are no exports). This partition can be used to construct within-groups and between-groups components of the overall Theil index. As shown in the technical appendix 7.A.2, by distinguishing the Theil sub-index for the group of inactive lines from the Theil sub-index for the group of active lines, changes in concentration/diversification within and between groups can be set apart. More importantly, it can be shown that, given this partition, changes in the withingroups Theil index measure changes at the intensive margin, whereas changes in the between-groups Theil index measure changes at the extensive margin. In sum, Theil’s decomposition makes it possible to decompose changes in overall concentration into extensive-margin and intensive-margin changes. 3 This is a particularly important feature, as changes at the intensive margin or extensive margin reflect very different evolution of a country’s productive activities and policies aiming at enhancing diversification in either margin entail distinct recommendations. The extensive margin defined this way (by simply counting the number of active export lines) leaves out, however, important information. To see why, observe that a country can raise its number of active export lines in many different ways. For instance, it could add “embroidery in the piece, in strips or in motifs” (HS 5810); or it could add “compression-ignition internal combustion piston engines” (HS 8408, i.e. diesel engines). Clearly, these two items are not of the same significance economically, although a mere count of active lines would treat them alike. Hummels 2 An active line corresponds to a non-zero export line of the HS6 nomenclature (about 5,000 lines) for a given year. 3 This mapping between the Theil decomposition and the margins was first proposed by Cadot, Carrère and Strauss-Kahn (2011). 255
Trade and Employment: From Myths to Facts and Klenow (2005) proposed an alternative definition of the intensive and extensive margins that takes this information into account. They define the intensive margin as the share of country i’s exports value of good k in the world’s exports of that good. That is, country i’s intensive margin is its market share in what it exports. The extensive margin is defined as the share, in world exports, of those goods that country i exports (irrespective of how much i itself exports of those goods). That is, it indicates how much the goods that i exports count in world trade. 4 7.2.3 Alternative margins Although the intensive and extensive product margins as defined above are the most widely studied in the literature on diversification, several other margins bring further understanding on trade and diversification patterns. Brenton and Newfarmer (2007) proposed an alternative definition of the extensive margin based on bilateral flows. The index measures how many of destination country j’s imports are covered (completely or partly, the index does not use information on the value of trade flows) by exports from country i. The numerator of Brenton and Newfarmer’s index for country i is the number of products that i exports to j, while its denominator is the number of products that (a) j imports from anywhere and (b) i exports to anywhere (see technical appendix 7.A.3). It is thus the sum of actual and potential bilateral trade flows (for which there is a demand in j and a supply in i), and the fraction indicates how many of those potential trade flows actually take place. The survival of trade flows (export sustainability), analysed for the first time in the seminal work by Besedes and Prusa (2006), provides another margin of export expansion. The length of time during which bilateral exports of a given good take place without interruption is a dimension along which exports vary and which may Figure 7.1: Margins of export growth 256 Export growth Intensive margin : higher volumes of existing products & destinations Extensive margin New products New destinations Sustainability margin : Survival of new products/destinations 4 See technical appendix 7.A.2.2 for a formalization of the Hummels and Klenow index.
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Trade and Employment From Myths to
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Trade and Employment From Myths to
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PREFACE Trade negotiations -bilater
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Trade and Employment: From Myths to
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EDITORS AND CONTRIBUTORS EDITORS Ma
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ACKNOWLEDGEMENTS The editors wish t
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NEW EVIDENCE ON TRADE AND EMPLOYMEN
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Chapter 2: New evidence on trade an
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Region Annualized percentage change
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Region 1980 1985 1990 1995 2000 200
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Figure 2.4.b: Long-run association
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20 See Harrison and Rodriguez-Clare
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ASSESSING THE IMPACT OF TRADE ON EM
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Chapter 3: Assessing the impact of
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APPPENDIX 3.A: TABLES Chapter 3: As
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TRADE AND THE INFORMAL ECONOMY 4.1
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Chapter 4: Trade and the informal e
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For more than two decades, quantita
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GENDER ASPECTS OF TRADE 5.1 INTRODU
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and income-earning opportunities ge
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Figure 5.1: Description of gender i
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Chapter 5: Gender aspects of trade
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A third view is that the type of jo
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