Assessing Export Competitiveness

1
AssessingExport Competitiveness

• Jean-Pierre Chauffour
• Economic Advisor, International Trade Department
• PREM Learning Week
• April 24, 2008

2
Export Competitiveness (EC)Session Outline

• 900-930 Introduction to the EC framework
• Jean-Pierre Chauffour (Advisor, PRMTR)
• 930-1015 Assessing the incentive system
• Paul Brenton (Senior economist, PRMTR)
• 1015-1030 Coffee break
• 1030-1115 Services trade
• Gianni Zanini (Lead Economist, WBI)
• 1115-1200 Proactive policies
• Mallika Shakya (Economist, PRMTR)
• 1200-1230 QAs

3
Export Competitiveness FrameworkKey messages

• In practice, export competitiveness has gained
  traction in many countries
• In theory, the EC literature is diverse,
  evolving, but largely converging (Lucas, Romer,
  Porter, Rodrik, Growth Commission)
• A flexible three-pillar framework can be applied
• A growth area in the Bank anchor (trade strategy,
  GPG, Aid for Trade) and country operations (e.g,
  Mauritius)

4
Rapid growth is associated with openness
Real Exports / GDP in 1997
Average real GDP per capita growth (1997-2007)
Source DECPG
5
The speed with which countries opened is also
positively associated with faster growth
Change in Real Exports / GDP (2007-1997)
Average real GDP per capita growth (1997-2007)
Source DECPG
6
Trend developing country growth has become
decoupled from trend high-income growth
Developing and high-income growth and trend growth
Developing countries
High-income countries
Source World Bank, DECPG.
7
Developing country exports increased faster than
GDP (and faster than world exports)
Average annual growth of GDP and Exports,
1990-2007
Real Exports
Real GDP
Source DECPG
8
Technological progress in developing countries
has outpaced high-income countries
Percent change in technological achievement,
2000s vs 1990s
Source World Bank
9
Technology gap narrowing but still wide
Index of technological achievement
2000s
1990s
Source World Bank
10
Diverse Literature and Evolving Concepts and
Associated Practice

• Recent and not-so-recent schools examples
• Micro-foundation of competitiveness (Porter)
• Industry-specific approach (Mc Kinsey)
• Institutions (Rodrik and Sabel)
• Pervasive in the more generalist literature
  (Lucas, Romer, Krueger, Bhagwati, etc.)

11
Concept (1) - Micro-Foundations Approach

• Sound macroeconomic policies and stable political
  and legal institutions are necessary but not
  sufficient conditions to ensure a prosperous
  economy
• Competitiveness, based on the productivity with
  which nations produce goods and services, is
  rooted in a nations microeconomic fundamentals
• Michael Porter will deliver a lecture to Bank
  staff this afternoon from 300 to 500 pm, Room
  I2-250

12
Concept (2) - Industry specific approach

• Methodology to examine the binding constraints in
  factor markets in specific export industries of
  interest to developing countries (garments,
  agriculture, metals and minerals, tourism, light
  manufacturing)
• It is not about picking winners, especially in
  low-income countries with obvious revealed
  comparative advantages and limited institutional
  capacity
• It is about informing macro-policy making (e.g.,
  exchange rate policy, fiscal policy, labor
  policy, land policy, competition policy, etc.)
• Source Palmade (2005)

13
Concept (3) - Developing Right Institutions

• Market failures contribute to slow growth and
  demand proactive policies
• New approach to Industrial policy to speed up
  the process of structural change towards higher
  productivity activities
• Emphasis on getting right the strategic
  collaboration with the private sector
• Emphasis on processes and procedures as opposed
  to specific policy instruments or sectors (old
  industrial policy)
• Gradual, cumulatively transformative change
  through identification of bottlenecks and
  self-correction
• Source Hausmann, Rodrik, and Sabel (2003, 2004,
  2007)

14
A stylized observation Export Diversification
Products and Markets
Expanding existing products in existing markets
has greater weight in export growth than
diversification into new product and into new
geographic markets
Source Brenton and Newfarmer (2007)
15
DTISs - Precursor Work on Export Competitiveness

• About 40 DTIS completed, of which 23 in Africa
• Focus on impediments to export growth in
  low-income countries
• Main findings
• Addressing at-the-frontier obstacles important,
  but not sufficient
• Importance of the behind-the-border agenda
• Trade logistics
• Standards

16
The Three-Pillar Framework
17
A flexible framework adaptable to country
circumstances

• First generation reforms yet to be completed in
  many LICs despite macro-stabilization achievement
• It includes
• Addressing the anti-export bias
• Improving functioning of factor markets
• Strengthening the regulatory and administrative
  environments
• Investing in trade infrastructure including
  transport, energy, and trade logistics.

18
Implementing the Export Competitiveness Current
Status

• Implementation in a number of country ESWs and
  lending
• Mauritius, Mozambique, Tanzania,
  Madagascar,Tunisia, Egypt and Libya
• Scaling-up of trade work in the Anchor
• Benchmarking indicators and database LPI, WTI,
  WITS, and soon SEZ worldwide database global
  Buyers studies
• Toolkits Revenue impact of tariff reforms
  (TRIST)
• Learning activities Porter Bhagwati BBLs
• Additional resources BB and MDTF

19
Example Mauritius Competitiveness Review
Far-Reaching Recommendations

• Long-term decline in competitiveness and triple
  trade shock.
• Move resources labor, land, investment capital
  -- out of inefficient activities and into
  internationally efficient ones
• Incentive regime
• Move to duty free island (end of EPZ status and
  normal system of VAT rebates on exports)
• Reform corporate income tax
• Release land and labor from sugar to alternative
  uses
• Early depreciation of rupee
• Opening of the air transport market to support
  growth in tourism
• Strong telecom regulation to curb monopoly
  practices
• Reform ports and upgrade facilities to develop
  global transshipment and become a regional hub
• Access to training
• Target unemployed, not only employed
• Develop higher skills greater investments in
  particular schools (e.g., the Hotel School of
  Mauritius), improvements in university courses
  leading to employment in high growth sectors
  (such as tourism and ICT).

20
Some Caveats to the Focus on Export
Competitiveness

• Not an end in itself but a growth vehicle
• It is ultimately about imports (of technology)
• It is part of a global positive sum gain
• Export Competitiveness is not always a priority
• It is not exclusively or mainly about countries !