Globalisation and Euro Competitiveness: Interactions and Challenges( * ) F. di Mauro. European Central Bank

Transcription

1 Globalisation and Euro Competitiveness: Interactions and Challenges( * ) F. di Mauro European Central Bank Paris, 9-10 May 2007 ( * ) The views expressed in this presentation are those of the authors of the forthcoming ECB Occasional Paper Globalisation and Euro Area trade and do not necessarily represent those of the European Central Bank. External Developments Division 1

2 Focus of the presentation Globalisation is changing world patterns of production and trade How is Euro area adjusting? We look at structural changes associated with globalisation on euro area trade Most notably related to: Trade integration of new global players (China, CEEC s) Fragmentation of production across countries External Developments Division 2

3 Outline 1. Developments in euro area imports 2. Developments in euro area exports 3. Production fragmentation and trade specialisation 4. Conclusions External Developments Division 3

4 Globalisation is associated with higher import penetration Import penetration in the industrialised countries (Volume index, 1991=100) United States United Kingdom Euro area Japan Source: CEPII BACI and ECB Calculations. External Developments Division 4

5 Imports in part displace intra EA imports Change in euro area manufacturing import shares by country of origin China New Member States (a) Candidate countries (b) OPEC (c) ASEAN (d) South and Central America CIS (e) Canada Denmark Norway Sweden Switzerland United States Japan United Kingdom Intra-euro area Source: Eurostat and ECB calculations. Note: Percentage point change in import shares in total (intra+extra) euro area imports between 1995 and External Developments Division 5

6 Evidence of imports adjustments for Germany, France, Italy Import shares by country (Percent of total non-energy import values, 2004) Change in import structure (percentage point change in share of total non-energy import values, to ) Intra EA Developing countries Other industrialised countries Intra EA Developing countries Other industrialised countries 0 Germany Italy France -6 Germany France Italy Source: CEPII BACI database, ECB calculations. Source: CEPII BACI database, ECB calculations. External Developments Division 6

7 Outline 1. Developments in euro area imports 2. Developments in euro area exports 3. Production fragmentation and trade specialisation 4. Conclusions External Developments Division 7

8 Losses in export market shares Export market shares (In volumes; index 1994=100) United Kingdom Euro area China (rhs) Japan United States Source: IMF, Eurostat and ECB computations. Note: Last observation refers to External Developments Division 8

9 ...hide heterogeneity at the country level Export market share, selected euro area countries (index, 1998=100; quarterly data; seasonally adjusted) Germany Spain France Italy Netherlands Ireland Italy Ireland Germany France Price competitiveness and export market shares across euro area countries (annual percentage change) Change in export market shares Gain FI FR DE AT PT IE NL GR BE ES Change in relative export prices IT Loss Source: Eurostat National Accounts and ECB calculations. Note: The data show average annual rates of change for the period Price competitiveness is proxied by relative Note: Last observation refers to 2005Q4. export prices (country export prices divided by competitor s export prices). An increase in relative export prices implies a fall in competitiveness. External Developments Division 9

10 Specialisation of the euro area is quite balanced Revealed comparative advantage by factor intensity 1 Exports are predominantly: Euro area USA Japan China CEECs Raw materials intensive Labour intensive Capital intensive Research intensive Source: Chelem, ECB calculations 1 Balassa index of revealed comparative advantage; Average for the period CEECs are the Commonwealth of Independent States (Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, the Republic of Moldova, the Russian Federation, Tajikistan, Turkmenistan, Ukraine, Uzbekistan), Estonia, Lithuania, Latvia, former Yugoslavia, (subsequently Bosnia and Herzegovina, Croatia, Macedonia, Serbia, Montenegro and Slovenia), Albania, Bulgaria, former Czechoslovakia, (subsequently Czech Republic and Slovakia), Hungary, Poland, Romania and Turkey. External Developments Division 10

11 and quite stable over time Revealed comparative advantage Euro area, researchintensive goods China, researchintensive goods China, labour-intensive goods Source: Chelem, ECB calculations 1 Balassa index of revealed comparative advantage. Euro area, labourintensive goods Euro area specialisation has hardly changed over time Unlike China s fast move out of labour into researchintensive goods External Developments Division 11

12 with nuances at the country level Export specialisation by euro area country EA (intra+extra) DE Aircraft and Spacecraft Pharmaceuticals Medical, precision and optical instruments Low-technology industries FR IT NL ES IR B/LUX FI AU PT GR Source: Chelem, ECB calculations External Developments Division 12

13 World import demand and change in euro area specialisation 1 Missed opportunities World trade growth, % p.a Electrical machinery and apparatus, n.e.s Pharmaceuticals Electronics and communications equipment Rising stars Not elsewhere specified products Basic metals and fabricated metal products Textiles, leather and footwear Rubber and plastics products Office, accounting and computing machinery Medical, precision and optical instruments Aircraft and spacecraft Wood, pulp, paper, printing and publishing Chemicals excluding pharmaceuticals Motor vehicles, railroad and transport equipment, n.e.s Machinery and 6.0 Change in equipment, n.e.s. Building and repairing of ships and boats specialisation Retreats Other non-metallic mineral products Agriculture, food products, beverages and tobacco Declining stars Source: Chelem, ECB calculations High-tech Medium-high-tech 1 Change in the Balassa index of revealed comparative Medium-low-tech Low-tech advantage from to External Developments Division 13

14 Outline 1. Developments in euro area imports 2. Developments in euro area exports 3. Production fragmentation and trade specialisation 4. Conclusions External Developments Division 14

15 Measuring international sourcing We use imports of intermediate goods as proxy for the international sourcing of production inputs Advantage: good comparability across countries Caveats: 1) Also final goods can be used as inputs 2) Intermediate imports may be used for domestic production, not exports. External Developments Division 15

16 Euro area comparative advantages are confirmed while US appears even more decisively specialised in research intensive sectors Modified Lafay index of specialisation by sector intensities 1 Euro area US Average Change Average Change Raw materials intensive Labour intensive Capital intensive Research intensive Source: Chelem and BACI databases, ECB calculations Note: Average is for the period and the change for to Modified Lafay index of revealed comparative advantage (cyclically adjusted trade balance), but netting off intermediate rather than total imports. A country is specialised in a particular good/sector if the index > 0. External Developments Division 16

17 Outline 1. Developments in euro area imports 2. Developments in euro area exports 3. Production fragmentation and trade specialisation 4. Conclusions External Developments Division 17

18 Conclusions Globalization complicates the competitiveness assessment. Cannot rely only on market shares. EA exports prevalent in middle-high tech but overall a quite diversified export structure, with increasing specialization in high tech which holds true even after netting out exports from imported intermediate goods There are strong differences at the country level due to price competitiveness and sectoral specialization. External Developments Division 18

19 Further challenges may still be to come Over time export specialisation tends to change rather slowly with respect to competitors Structural rigidities? Research needs to look at direct interactions between multinational activity and productivity External Developments Division 19

20 The end External Developments Division 20

21 Reserve slides External Developments Division 21

22 Export indicators used External Developments Division 22

23 List of export indicators used (with formulas) Balassa index of RCA: (x k,j / x k,j )/ (x w,j / x w,j ) Lafay index: LFI ij 1000*(x ij -m ij / x ij + m ij )- -[ j *(x ij -m ij )/ j *(x ij + m ij )] * * [(x ij + m ij )* j*(xij + mij)] External Developments Division 23

24 Exports related slides unused External Developments Division 24

25 The euro area specialises in medium- high-technology sectors Revealed comparative advantage by sector 1 High-technology industries (HT) Aircraft and spacecraft Pharmaceuticals Office, accounting and computing machinery Medical, precision and optical instruments EA USA China Medium-high-technology industries (MHT) Electrical machinery and apparatus Motor vehicles, railroad and transport equipment Chemicals excluding pharmaceuticals Machinery and equipment, n.e.s Low-technology industries (LT) Wood, pulp, paper and paper products Agriculture, food products, beverages & tobacco Textiles, clothing and footwear Source: Chelem, ECB calculations 1 Balassa index of revealed comparative advantage, average External Developments Division 25

26 Comparative advantage results by factor intensities after netting out imports confirmed also for selected sectors Average Euro area Change High-technology industries Aircraft and spacecraft Pharmaceuticals Office, accounting and computing machinery Medical, precision & optical instruments Medium-high-technology industries Motor vehicles, railroad & transport equipment Machinery and equipment, n.e.s Source: Chelem and BACI databases, ECB calculations Note: Modified Lafay index of revealed comparative advantage; Average is for the period and the change for to External Developments Division 26

27 World import demand and change in US specialisation 1 Missed opportunities Office, accounting and computing machinery World trade growth, % p.a Electronics and communications equipment Electrical machinery and apparatus, n.e.s Basic metals and fabricated metal products Motor vehicles, railroad and transport equipment, n.e.s Chemicals excluding pharmaceuticals Rising stars Pharmaceuticals Not elsewhere specified roducts Rubber and plastics products Medical, precision and optical instruments Change in Machinery and equipment, n.e.s. 6.0 specialisation Building and repairing of ships and boats Wood, pulp, paper, printing and publishing 4.0 Other non-metallic mineral products Textiles, leather and footwear Aircraft and spacecraft Retreats Agriculture, food products, beverages and tobacco Declining stars Source: Chelem, ECB calculations High-tech Medium-high-tech 1 Change in the Balassa index of revealed comparative Medium-low-tech Low-tech advantage from to External Developments Division 27

28 World import demand and change in China s specialisation 1 Missed opportunities World trade growth, % p.a Rising stars Chemicals excluding pharmaceuticals Pharmaceuticals Basic metals and fabricated metal products Electronics and communications equipment Electrical machinery and apparatus, n.e.s. Rubber and plastics products Office, accounting and computing machinery Medical, precision and optical Machinery and equipment, n.e.s. Change in instruments 6.0 specialisation Textiles, textile products, leather Agriculture, fishing and food and footwear products, beverages and tobacco 4.0 Motor vehicles, trailers and semitrailers, railro ad and trans po rt equipment, n.e.s. Retreats Declining stars Source: Chelem, ECB calculations High-tech Medium-high-tech 1 Change in the Balassa index of revealed comparative Medium-low-tech Low-tech advantage from to External Developments Division 28

29 World import demand and change in specialisation - France Chart 1: Change in France s export specialisation and world trade growth Missed opportunities Office, accounting and computing machinery Rubber and plastic products Basic metals and fabricated metal products Medical, precision and optical instruments Electrical machinery and apparatus Chemicals excluding pharmaceuticals Other non-metallic mineral products Agriculture, food, beverages and tobacco 2 0 Electronics and communications equipment Machinery and equipment, n.e.s. Wood, pulp, paper, printing and publishing Pharmaceuticals Not elsewhere specified products Rising stars Motor vehicles, railroad and transport equipment Change in specialisation Retreats World import growth, percent p.a. Building and repairing of Aircraft and spacecraft ships and boats Textiles, clothing and footwear Declining stars Note: The change in export specialisation is defined as the change in the Balassa index of revealed comparative advantage on average between and The size of the bubbles is determined by the share of exports in total exports. World import growth is the defined as the average annual growth rate of imports over the period External Developments Division 29

30 World import demand and change in specialisation - Italy Chart 2: Change in Italy s export specialisation and world trade growth Missed opportunities Office, accounting and computing machinery Electronics and communications equipment Electrical machinery and apparatus Medical, precision and optical instruments Other non-metallic mineral products Textiles, clothing and footwear Aircraft and spacecraft Pharmaceuticals Rubber and plastic products Basic metals and fabricated metal products Chemicals excluding pharmaceuticals Not elsewhere specified products Machinery and equipment, n.e.s. Wood, pulp, paper, printing and publishing Agriculture, food, beverages and tobacco Motor vehicles, railroad and transport equipment Building and repairing of ships and boats Retreats World import growth, percent p.a. Rising stars Change in specialisation Declining stars Note: The change in export specialisation is defined as the change in the Balassa index of revealed comparative advantage on average between and The size of the bubbles is determined by the share of exports in total exports. World import growth is the defined as the average annual growth rate of imports over the period External Developments Division 30

31 World import demand and change in specialisation - Spain Chart 3: Change in Spain s export specialisation and world trade growth Missed opportunities Office, accounting and computing machinery Motor vehicles, railroad and transport equipment Electronics and communications equipment Basic metals and Electrical machinery and fabricated metal products apparatus 10 Medical, precision and optical instruments Machinery and equipment, n.e.s Building and repairing of ships and boats Rubber and plastic products Aircraft and spacecraft 0 Not elsewhere specified products Pharmaceuticals Chemicals excluding pharmaceuticals Retreats World import growth, percent p.a. Textiles, clothing and footwear Other non-metallic mineral products Rising stars Wood, pulp, paper, Change in specialisation printing and publishing Agriculture, food, beverages and tobacco Declining stars Note: The change in export specialisation is defined as the change in the Balassa index of revealed comparative advantage on average between and The size of the bubbles is determined by the share of exports in total exports. World import growth is the defined as the average annual growth rate of imports over the period External Developments Division 31

32 Exports summary of main findings Structural changes associated with globalisation are having a downward impact on world export shares of developed economies EA exports are specialised in medium\high-tech sectors, with some increase dynamic high-tech sectors..overall there is a quite diversified export structure in terms of resource intensity (positive or negative?)..over time export specialisation tends to change rather slowly with respect to other competitors (structural rigidities?) US, keep loosing export market shares while increasingly concentrating into high-research intensive sectors China is climbing up the technology ladder Caveat Broad categories of sectors External Developments Division 32

33 Inability of price competitiveness to explain fully EA trade volume equations and effects of exchange rate appreciation/depreciation External Developments Division 33

34 Price-competitiveness alone does not explain fully changes in EA export volumes EXTRADE export equation xr = ( 4.15 ) ( xr fd ) rxp trend ( 3.32 ) ( 1.98 ) ( 2.87 ) fd rxp d ( 6.84 ) ( 1.43 ) ( 4.87 ) ( 4.71 ) + ( d 953 d 953 ) 1 R 2 = DW = There is evidence of losses in euro area export market share unrelated to export price competitiveness External Developments Division 34

35 Important role of China in explaining these losses Euro area export market shares (In volumes; index 1992=100) Excluding China Taking world imports from China out of foreign demand explains part of the loss in euro area market share Total Source: ECB computations. Note: The last observation is for 2006 Q1. The negative time trend in the EXTRADE export equation becomes statistically insignificant External Developments Division 35

36 Uncertain effects of euro appreciations and depreciations on EA exports With higher degree of substitutability of euro area products, exports might actually react more sensitively to exchange rate changes...but higher import content of domestic production and by extension of exports partly shelters exporters from exchange rate variation. External Developments Division 36

37 Imports related slides External Developments Division 37

38 Import penetration in the industrialised countries (Volume index, 1991=100) United States United Kingdom Euro area Japan Source: CEPII BACI and ECB Calculations. External Developments Division 38

39 Imports in part displace intra EA imports Change in euro area manufacturing import shares by country of origin China New Member States (a) Candidate countries (b) OPEC (c) ASEAN (d) South and Central America CIS (e) Canada Denmark Norway Sweden Switzerland United States Japan United Kingdom Intra-euro area Source: Eurostat and ECB calculations. Note: Percentage point change in import shares in total (intra+extra) euro area imports between 1995 and External Developments Division 39

40 Evidence of imports adjustments for Germany, France, Italy Import shares by country (Percent of total non-energy import values, 2004) Change in import structure (percentage point change in share of total non-energy import values, to ) Intra Intra EA EA Developing Developing countries countries 60 Other Other industrialised industrialised countries countries Germany Germany Italy Italy France France Intra Intra EA EA Developing Developing countries Other industrialised countries Other industrialised countries countries Germany Germany France France Italy Italy Source: CEPII BACI database, ECB calculations. Source: CEPII BACI database, ECB calculations. External Developments Division 40

41 Rising import content of exports may mitigate negative impact of euro appreciation on exports Germany, long term import equation recursive coefficient on exports Q12000Q12001Q1 2002Q12003Q12004Q1 2005Q1 Source: Bundesbank. External Developments Division 41

42 Shift in sourcing of euro area imports... Euro area imports of goods by stage of production (percent of total non-energy import values, average ) Capital goods Consumption goods Intermediate goods Total Developing countries Industrialised countries Source: CEPII BACI database, ECB calculations. EA increasingly sources imports from developing rather than industrialised countries External Developments Division 42

43 and associated with increasing outsourcing in both developed and developing countries Euro area outsourcing intensity ( ) 16 Outsourcing Intensity in % Year Total Outsourcing Outsourcing in Developed Countries Outsourcing in Developing Countries Source: OECD Input-output tables, Eurostat New-Cronos production values, Comext import data and ECB calculations. External Developments Division 43

44 ..due to more competitive prices.. Euro area relative import prices by pair of source country (median price 2005) 2005 China New EU Member States US Japan Great Britain Source: Comext CN 8-digit database and ECB calculations. Note: Median calculated over the 9209 product categories available in the COMEXT CN-8digit database External Developments Division 44

45 Impact of trade liberalisation on EA import prices from selected partners Euro area relative import prices by pair of source country (median price ) 1996 China New EU Member States US Japan Great Britain US Japan Great Britain China New EU Member States Source: Comext CN 8-digit database and ECB calculations. Note: Median calculated over the 9209 products available in the COMEXT CN-8digit database External Developments Division 45

46 Impact of trade liberalisation on EA import prices from selected partners (detailed table) Euro area import prices differences by pair of source country Numerator Denominator (median price ) EU new member states China Low Cost Countries Euro Area US Japan Great Britain High Cost Countries EU new member states China Low Cost Countries Euro Area US Japan Great Britain High Cost Countries Source: Comext database, ECB calculations. External Developments Division 46

47 Variety and import competition is increasing We import more categories of products from a larger number of trading partners Out of 9202 categories of products : 1702 were newly imported in the euro area in in the past decade, due to technical progress or variety effects and 1113 were phased out. No net additions out of Japan Big increase in variety for China United States Japan Changes in number of imported categories of products, by partner ( ) Trade partner China New Member States Intra-EA Great Britain Newly imported from trade partner No longer imported from trade partner Source: Comext CN 8-digit database and ECB calculations. External Developments Division 47

48 Large amounts of new products imported from all trade partners (extensive margin of trade) LC JP partner CN NM EA GB DK-SE IS-NO-CH US CA-AU- NZ HC Extensive margin of trade ( ) products newly imported from listed partner (extensive margin of trade) total new imports (technical progress or variety effect) products already imported from at least one partner in products no longer imported from listed partner Source: Comext CN 8-digit database and ECB calculations. External Developments Division 48 total products still imported from at least one partner net gain in number of products (% share of total number of products imported) from listed partner

49 Productivity: sectoral figures External Developments Division 49

50 Sectoral productivity growth Euro area sectoral productivity growth and export specialisation Productivity growth Chemicals Motor vehicles, railroad & transport equipment Other Machinery & equipment Pharmaceuticals 2 1 Textiles, clothing & footwear Revealed comparative advantage Source: Groningen Growth and Development Centre, 60-Industry Database, October 2005, ECB calculations. Note: Productivity growth is for the period and the index of revealed comparative advantage for External Developments Division 50

51 Sectoral labour productivity growth in Agriculture, fishing, food, beverages and tobacco developed economies (average annual percentage change over the period , unless otherwise specified) Euro area USA High-technology industries (HT) Aircraft and spacecraft Pharmaceuticals & chemicals Office, accounting and computing machinery Radio, TV and communications equipment Medical, precision and optical instruments Medium-high-technology industries (MHT) Electrical machinery and apparatus Motor vehicles, railroad and transport equipment Machinery and equipment Medium-low-technology industries (MHT) Building and repairing of ships and boats Rubber & plastic products Basic metals and fabricated metal products Other non metallic mineral products Low-technology industries (LT) Wood, pulp, paper and paper products Textiles, textile products, leather and footwear Not elsewhere specified products Source: Groningen Growth and Development Centre, 60-Industry Database, October 2005, ECB calculations Note: For Japan, the average of labour productivity growth is for the period due to data availability. External Developments Division UK Japan

52 FDI and MNEs Productivity External Developments Division 52

53 Strong rise in foreign direct investment World imports and global stock of inward and outward FDI as proportion of world GDP (as percent of GDP) 35 Inward FDI Outward FDI World imports Source: UNCTAD, WIR 2005, External Developments Division 53

54 Globalisation induced advantage for MNEs over domestic firms? Sample of about 240,000 firms balance sheets ( accounting for 44% of EA employment and 40% of EA value added) from commercial database AMADEUS, MNCs sampled in Amadeus are only 3% of the total...but they account for a disproportionately high share of economic activity MNCs as % total manufacturing EA firms sampled in AMADEUS Number of firms Turnover Value Added 3% 40% 43% Note: The sample includes Euro Area firms. Source: Amadeus and ECB calculations. External Developments Division 54

55 Multinationals are more productive than domestic firms No domestic/foreign affiliates At least one foreign affiliate More than one foreign affiliate Only domestic affiliates Note: Sample of about 240,000 firms balance sheets ( accounting for 44% of EA employment and 40% of EA value added) from commercial database AMADEUS, which reports balance sheet data at the firm-level. Source: Amadeus and ECB calculations. External Developments Division 55

56 and have higher productivity growth Productivity Growth Rates (in percent, ) TFP based on reduced sample Domestic firms Incumbent MNC's New MNC's Weighted by Employment Turnover Notes: TFP figures for reduced sample (only firms from France, Finland, Italy, Spain, Portugal) Source: Amadeus and ECB calculations. External Developments Division 56

57 MNEs higher chances to survive Exit and entry Rates for the Euro area All firms MNE's in 2003 MNE's in 2006 Exit Rate Survival Rate Newcomer Rate "Stat-Ups" Newly Sampled Firms Rate Note: Base year Sample: Euro area except Belgium and Luxembourg. Source: Amadeus and ECB calculations. External Developments Division 57

58 TFP From Cobb-Douglas function, for each firm i at time t : VA= value added L= Labour K= Capital VA it = TFP it * L it βl * K it βk TFP= Efficiency parameter for total factor productivity Following Levinshon and Petrin (2003) we use material inputs to construct non-biased TFP measures (i.e. orthogonal - or uncorrelated - to the input choices of labour and capital) Note: Base year Sample: Euro area except Belgium and Luxembourg. Source: Amadeus and ECB calculations. External Developments Division 58

59 Protectionism External Developments Division 59

60 Protectionism Public debate revolves around two fears: Increasing import penetration transfer of production activities to another country Triggered by a number of high profiles cases of relocation Fears concern common association of the challenges of a globalised economy with: Adverse effects on domestic employment and wages Competitiveness of domestic firms Employment effects are uncertain (contrasting forces) International activity of domestic firms through exporting and outward horizontal FDI (great majority of overall FDI) is positively linked to a country s aggregate competitiveness and productivity. External Developments Division 60