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

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Chapter 7: Trade diversification: Drivers and impacts also be a margin for export promotion. Figure 7.1 summarizes our decomposition of export growth. Theil’s, 5 Hummels and Klenow’s, and Brenton and Newfarmer’s indices provide different pieces of information and should be used accordingly. The former index measures the concentration in products. It thus informs policy-makers on the distribution of economic activity across existing products/sectors (intervention at the intensive margin) and the potential for broadening the country’s export portfolio to new sectors (intervention at the extensive margin). Brenton and Newfarmer’s index gives information about geographic diversification at the extensive margin. For existing products, it shows how many markets are reached and informs on the potentiality of extending production to new markets. Policies aimed at increasing the scope of exports in terms of products or destination markets are obviously very different. It is therefore important for policy-makers to use the right tool for the right policy question. Finally, Hummels and Klenow’s index gives an idea of whether national exporters are “big fish in a small pond” (large intensive margin, small extensive margin) or “small fish in a big pond” (small intensive margin, large extensive margin). As an illustration of how these concepts can be put to work for policy analysis, figure 7.2 shows the evolution of the intensive and extensive margins defined as in Figure 7.2: Evolution of the intensive and extensive margins, selected countries, 1998–2008 n i g r a M e v i s n e t n I Country’s market share in its export portfolio .1 .2 .4 .6 .8 1 1.2 Intensive and Extensive Margin in Products, 1998-08 Big fish in a small pond Pakistan Vietnam Pakistan Indonesia Vietnam 5 The interpretation for Herfindhal or Gini indices is obviously similar. India India Indonesia 85 90 95 100 Extensive Margin 1998 2008 Small fish in a big pond Weight of national export portfolio in world trade Source: Comtrade. The authors are grateful to Swarnim Wagle, of the World Bank’s Trade Division, for sharing this graph. 257
Trade and Employment: From Myths to Facts Hummels and Klenow for selected countries over the decade preceding the global financial crisis. It can be seen, for instance, that Pakistan’s extensive margin has been rising, suggesting active export entrepreneurship. By contrast, its intensive margin has slightly shrunk, suggesting that existing Pakistani exporters are finding it difficult to maintain competitiveness. This type of broad-brush observation is useful to get a first shot at potential constraints on growth — for example, the problem may be declining competitiveness in the textile and clothing sector due to the elimination of Multi- Fibre Arrangement (MFA) quotas. By contrast, India has grown almost only at the intensive margin, which is to be expected given that it is already fully diversified (as the products that belong to its export portfolio account for close to 100 per cent of world trade). Overall, countries can be expected to walk a crescent-shaped trail, first eastward as they broaden their portfolio, then full north as they consolidate positions. 7.3 WHAT DO WE LEARN FROM THESE MEASURES? 7.3.1 Trends in diversification The seminal work by Imbs and Wacziarg (2003) uncovered an unexpected non-monotonic relationship between production diversification and gross domestic product (GDP) per capita. Past a certain level of income ($9,000 in 1985 purchasing power parity (PPP) dollars), countries re-concentrate their production structure, whether measured by employment or value added. Using different data, Koren and Tenreyro (2007) confirmed the existence of a U-shaped relationship between the concentration of production and the level of development. Following their work, several papers have looked at whether a similar non-monotone pattern holds for trade. Looking at trade made it possible to reformulate the question at a much higher degree of disaggregation, since trade data is available for the 5,000 or so lines of the six-digit harmonized system (henceforth HS6). In terms of concentration levels, exports are typically much more concentrated than production. This concentration, which was observed initially by Hausmann and Rodrik (2006), is documented in detail for manufacturing exports in Easterly, Reshef and Schwenkenberg (2009). A striking (but not unique) example of this concentration is the case of Egypt, which, “[out] of 2,985 possible manufacturing products in [the] dataset and 217 possible destinations, […] gets 23 per cent of its total manufacturing exports from exporting one product — “ceramic bathroom kitchen sanitary items not porcelain” — to one destination, Italy, capturing 94 per cent of the Italian import market for that product” (page 3). These “big hits”, as they call them, account for a substantial part of the cross-country variation in export volumes. But they also document that the distribution of values at the export × destination level (their unit of analysis) closely follows a power law; that is, the probability of a big hit decreases exponentially with its size. Klinger and Lederman (2006), as well as Cadot, Carrère and Strauss-Kahn (2011), analyse the evolution of trade diversification. The former study uses a panel of 73 countries between 1992 and 2003, while the latter focuses on a larger one, with 156 258
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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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p * Chapter 3: Assessing the impact
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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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