Imported Intermediate Inputs and Export Diversification in Low Income Countries Felipe Benguria University of Virginia, PhD Student IMF Macroeconomic Challenges of Low Income Countries January 30-31 2014 1 / 43
Motivation Should developing countries step away from specializing in commodities and diversify their exports instead? Rodrik (2012): Unconditional Convergence in Labor Productivity in Manufacturing. Policies should reallocate resources towards manufacturing. Johnson, Ostry, Subramanian (2007): episodes of sustained growth in Sub-Saharan Africa despite weak institutions and lack of macro stability are linked to expanding manufactured exports. Hausmann, Hwang, Rodrik (2007): What you export matters. 2 / 43
Motivation Imbs and Wacziarg (2003): Positive relationship between diversification and income within countries through time (in range of income relevant to developing countries). World Bank s Can Africa claim the 21st Century (2000) report. 3 / 43
This paper Study role of vertical linkages in export diversification. Use new measure of upstreamness / downstreamness (Antras et al. (2012), Fally (2011)) of exports to characterize countries position in global value chains. Study effect of trade liberalization on export and import diversification and movements along supply chains. Is there a link between access to intermediate inputs and export diversification? 4 / 43
Road Map Trends in Export and Import Diversification, and in Movements along Supply Chains Effect of Trade Liberalization on Diversification of Exports and Imports, and in Position along Supply Chains. Link between access to Imported Intermediate Inputs and Export Diversification and Position along Supply Chains. 5 / 43
Trends in Export and Import Diversification 6 / 43
Figure III.A Concentration of Exports acros Share of Exports from top product 0.2.4.6.144.105 Concentration of Exports 1962 and 2000.383.196.192.151.471.24.575.511.416.189.472.49 1962 2000 1962 2000 1962 2000 1962 2000 1962 2000 1962 2000 1962 2000 Advanced Economies East Asia and the Pacific Europe and Central Asia Latin Am. and Caribbean Middle East and North Africa South Asia Sub Saharan Africa 7 / 43
Share of Exports from top three products 0.2.4.6.8 Advanced Economies.286.212 East Asia and the Pacific Concentration of Exports 1962 and 2000.618.372 Europe and Central Asia.347.316 Latin America and the Caribbean.697.454 Middle East and North Africa.745.652.627 South Asia.365 Sub Saharan Africa.723.713 1962 2000 1962 2000 1962 2000 1962 2000 1962 2000 1962 2000 1962 2000 Share of Exports from top three products Advan 8 / 43
Products Exported 1962 and 2000 Number of Products Exported 0 200 400 600 800 542.364 Advanced Economies 672.13 260.125 East Asia and the Pacific 440.5 304 Europe and Central Asia 425.412 Latin America and the Caribbean 180.92 264.48 176.471 Middle East and North Africa 280.556 262 220.2 South Asia Sub Saharan Africa 145.16 94.5 1962 2000 1962 2000 1962 2000 1962 2000 1962 2000 1962 2000 1962 2000 A 9 / 43
Exports of New Products in 2000 Share of Value in New Products 0.2.4.6.8 1 Advanced Economies.480088 East Asia and the Pacific.72077 Europe and Central Asia.909201 Latin America and the Caribbean.502213 Middle East and North Africa.4517.552932.410948 South Asia Sub Saharan Africa 10 / 43
Theil Index T = 1 N N i=1 ( ) x i µ ln xi µ with µ = N i=1 x i N 11 / 43
Figure III.B Diversification of Exports by Regions, 1962 2000 Diversification of Exports by Regions, 1962 2000 Diversification of Exports by Region: 1962 2000 5.18 Theil index 0 1 2 3 4 5 2.53 2.06 2.25 1.971.98 1.44 1.56 1.781.94 1.37 East Asia & Pacific 1962 1970 1980 1990 2000 Europe & Central Asia 1962 1970 1980 1990 2000 3.39 3.173.08 Latin America & Caribbean 2.482.43 1962 1970 1980 1990 2000 3.78 4.4 Middle East & North Africa 1962 1970 1980 1990 2000 4.12 4.2 1.85 1.571.591.581.59 North America 1962 1970 1980 1990 2000 2.85 2.45 2.31 2.01.98 South Asia 1962 1970 1980 1990 2000 4 3.29 2.93 Sub Saharan Africa 2.97 2.9 1962 1970 1980 1990 2000 12 / 43
re III.C Diversification of Imports by Regions, 1962 2000 Diversification of Imports by Regions, 1962 2000 Theil index 0 1 2 3 East Asia & Pacific 1.25 1.15 1.261.25 1.3 Diversification of Imports by Region: 1962 2000 1962 1970 1980 1990 2000 3.22 Europe & Central Asia 1.54 1.31.915.722 1962 1970 1980 1990 2000 Latin America & Caribbean 1.71 1.34 1.19 1.15 1.09 1962 1970 1980 1990 2000 0 1.26 Middle East & North Africa 1.63 1.1 1.99 1962 1970 1980 1990 2000 2.39 2.21 North America 1.25 2.21 1962 1970 1980 1990 2000 3.25 3.03 1.77 1.87 1.51 1.43 1.361.29 1.4 1.091.07 South Asia 1962 1970 1980 1990 2000 Sub Saharan Africa 1962 1970 1980 1990 2000 13 / 43
Figure III.D Diversification of Imports by Regions, 1962 2000. Only Intermediate Inputs. Diversification of Imports by Regions, 1962 2000. Only Intermediate Inputs Diversification of Imports by Region: 1962 2000 3.24 Theil index 0 1 2 3 East Asia & Pacific 1.39 1.21.18 1.16 1.3 1.441.44 1.11.917.701 1962 1970 1980 1990 2000 Europe & Central Asia 1962 1970 1980 1990 2000 1.72 Latin America & Caribbean 1.43 1.23 1.141.09 1962 1970 1980 1990 2000 0 Middle East & North Africa 1.59 1.28 1.11 1962 1970 1980 1990 2000 2.57 2.24 2.23 1.99 North America 1.22 1962 1970 1980 1990 2000 1.87 1.74 1.36 1.5 1.43 1.42 1.48 1.36 1.091.07 South Asia 1962 1970 1980 1990 2000 Sub Saharan Africa 1962 1970 1980 1990 2000 14 / 43
Trends in Export Upstreamness/Downstreamness 15 / 43
Measuring the Position of Countries Exports along Supply Chains Antras et al. (2012) and Fally (2011) develop measure of upstreamness/downstreamness that can be used to determine position of countries in global value chains. Measure based on input-output tables. Recursive definition: upstream industries are those that sell a large share of their output to other upstream industries. U i = 1 + N share i j U j j=1 I use their measure based on the U.S. 2002 IO table. Good representation of other countries and/or periods? No alternatives... Some examples... 16 / 43
Upstreamness/Downstreamness Index. List of Most Upstream and Most Downstream Products: STC4 Product Upstreamness Index 7810 Passenger motor cars, for transport of pass.& goods 1.00 Most downstream 8452 Dresses, skirts, suits etc, knitted or crocheted 1.02 8465 Corsets, brassieres, suspendres and the like 1.02 8952 Pens, pencils and fountain pens 1.03 7932 Ships, boats and other vessels 1.03 7931 Warships of all kinds 1.03 7523 Complete digital central processing units 1.04 7522 Complete digital data processing machines 1.04 7521 Analogue & hybrid data processing machines 1.04 7414 Refrigerators & refr.equipment, ex.household, parts 1.05 2816 Iron ore agglomerates (sinters, pellets, briquettes) 4.35 6821 Copper and copper alloys, refined or not, unwrought 4.35 6822 Copper and copper alloys, worked 4.35 2922 Shellac, seed lac,stick lac, resins, gum resins, etc. 4.60 2924 Plants,seeds, fruit used in perfumery, pharmacy 4.60 2320 Natural rubber latex; nat. rubber & sim. nat. gums 4.60 2120 Furskins, raw (includ. astrakhan, caracul, etc.) 4.60 6210 Materials of rubber(e.g.,pastes, plates, sheets,etc) 4.60 2923 Veget.mater.of a kind used primar. for plaiting 4.60 5112 Cyclic hydrocarbons 4.65 Most Upstream 17 / 43
Average Upstreamness 0.5 1 1.5 2 2.5 Upstreamness in All Sectors between 1962 and 2000 2.51 2.5 2.4 2.36 2.35 2.29 2.21 2.06 2.1 2.01 1.96 1.95 1.7 1.7 1962 2000 1962 2000 1962 2000 1962 2000 1962 2000 1962 2000 1962 2000 Advanced Economies East Asia and the Pacific Europe and Central Asia Latin Am. and Caribbean Middle East and North Africa South Asia Sub Saharan Africa 18 / 43
Upstreamness in Manufacturing between 1962 and 2000 Average Upstreamness 0 1 2 3 2.89 2.58 2.46 2.37 2.41 2.27 2.32 2.35 2.13 2.14 2.07 2.01 2.04 1.66 1962 2000 1962 2000 1962 2000 1962 2000 1962 2000 1962 2000 1962 2000 Advanced Economies East Asia and the Pacific Europe and Central Asia Latin Am. and Caribbean Middle East and North Africa South Asia Sub Saharan Africa 19 / 43
Trade Liberalization and Diversification. 20 / 43
Does trade liberalization lead to an increase in the variety of exported and imported products? Country-level regressions using Wacziarg and Welch s (2008) liberalization dates. 21 / 43
Liberalization Dates: All Countries Trade Liberalization Dates 0 5 10 15 1950 1960 1970 1980 1990 2000 Year 22 / 43
Liberalization Dates: Low Income Countries Trade Liberalization Dates, Low Income Countries 0 5 10 15 1985 1990 1995 2000 Year 23 / 43
Liberalization Dates: Sub-Saharan Africa Trade Liberalization Dates, Sub- Saharan Africa 0 5 10 15 1970 1980 1990 2000 Year 24 / 43
by Income Group, 1994 and 2007. Liberalization: Trends in Average Tariffs in Manufacturing. Average Tariff (simple mean) 0 10 20 30 40 50 Average Tariff in Manufacturing Industries 1994 and 2007 16.1 6.3 6.51 4.64 12 9.05 25.5 10.1 7.6 9.11 1 2 1 2 1 2 1 2 1 2 1 2 1 2 44.7 13 23.1 12.4 Average Tariff (simple mean) 0 5 10 15 20 25 Ave East Asia & Pacific Europe & Central Asia Latin America & Caribbean Middle East & North Africa North America South Asia Sub Saharan Africa Lo 25 / 43
orts in Manufacturing Industries by Region and Liberalization: Trends in Average Tariffs in Manufacturing nd 2007 23.1 ran Africa 12.4 1 2 Average Tariff (simple mean) 0 5 10 15 20 25 Average Tariff in Manufacturing Industries 1994 and 2007 23.2 Low Income Countries 11.5 12.4 1 2 1 2 Other Countries 7.02 26 / 43
Effect of Liberalization on the Diversification of Exports and Imports: Country-level Estimation. Diversification ct = Liberalized ct + µ t + δ c + ɛ ct 27 / 43
Effect of Trade Liberalization on Export Diversification Table VIA.1 Dependent Variable: (Log) Number of Exported Products Sample: All Countries Low Income Countries SSA Liberalized 0.005 0.123*** 0.145*** 0.029 0.034 0.038 Liberalized 0.002 0.059 0.06 (Standardized Coefficients) Year fixed effects Yes Yes Yes Country fixed effects Yes Yes Yes Number of Observations 4351 1439 1286 R squared 0.815 0.842 0.868 28 / 43
Effect of Trade Liberalization on Export Diversification Table VIA.2 Dependent Variable: Theil Index of Export Diversification Sample: All Countries Low Income Countries SSA Liberalized - 0.208 *** - 0.022 0 0.025 0.04 0.045 Liberalized - 0.121-0.011 0 (Standardized Coefficients) Year fixed effects Yes Yes Yes Country fixed effects Yes Yes Yes Number of Observations 4351 1439 1286 R squared 0.738 0.781 0.761 29 / 43
Effect of Trade Liberalization on Import Diversification: All Imports Table VIB.1 Dependent Variable: (Log) Number of Imported Products Sample: All Countries Low Income Countries SSA Liberalized 0.118 *** 0.186 *** 0.157 *** 0.016 0.028 0.03 Liberalized 0.129 0.169 0.134 (Standardized Coefficients) Year fixed effects Yes Yes Yes Country fixed effects Yes Yes Yes Number of Observations 4335 1438 1285 R squared 0.632 0.622 0.64 30 / 43
Effect of Trade Liberalization on Import Diversification: All Imports Table VIB.2 Dependent Variable: Theil Index of Import Diversification Sample: All Countries Low Income Countries SSA Liberalized -0.091 *** -0.101 *** -0.125 *** 0.018 0.033 0.034 Liberalized -0.094-0.07-0.084 (Standardized Coefficientes) Year fixed effects Yes Yes Yes Country fixed effects Yes Yes Yes Number of Observations 4335 1438 1285 R squared 0.594 0.703 0.723 31 / 43
Effect of Trade Liberalization on Import Diversification: Intermediate Inputs Table VIC.1 Dependent Variable: (Log) Number of Imported Products (Intermediate Inputs) Sample: All Countries Low Income Countries SSA Liberalized 0.117*** 0.177*** 0.159*** 0.017 0.031 0.033 Liberalized 0.109 0.141 0.12 (Standardized Coefficients) Year fixed effects Yes Yes Yes Country fixed effects Yes Yes Yes Number of Observations 4335 1438 1285 R squared 0.691 0.647 0.679 32 / 43
Effect of Trade Liberalization on Import Diversification: Intermediate Inputs Table VIC.2 Dependent Variable: Theil Index of Import Diversification (Intermediate Inputs) Sample: All Countries Low Income Countries SSA Liberalized -0.097*** -0.11*** -0.145*** 0.0179 0.034 0.036 Liberalized -0.097-0.072-0.091 (Standardized Coefficients) Year fixed effects Yes Yes Yes Country fixed effects Yes Yes Yes Number of Observations 4335 1438 1285 R squared 0.622 0.699 0.716 33 / 43
Trade Liberalization and Movements along Supply Chains. 34 / 43
Effect of Liberalization on Export Upstreamness/Downstreamness: Country-level Estimation. Upstreamness/Downstreamness ct = Liberalized ct + µ t + δ c + ɛ ct 35 / 43
Effect of Trade Liberalization on Upstreamness/Downstreamness Table VI.D Dependent Variable: Upstreamness/Downstreamness Index Sample: All Countries Low Income Countries SSA Liberalized -0.109 *** -0.084 ** 0.015 0.016 0.035 0.036 Liberalized -0.088-0.044 0.008 (Standardized Coefficients) Year fixed effects Yes Yes Yes Country fixed effects Yes Yes Yes Number of Observations 4351 1439 1286 R squared 0.786 0.801 0.816 36 / 43
Input Tariffs and Export Diversification. 37 / 43
Does the increased availability of imported inputs lead to export diversification and/or movements along supply chains? Goldberg et al (2010) in the context of India s trade liberalization. Diversification ict = Input Tariff ict + µ t + δ c + θ i + ɛ ict Upstreamness/Downstreamness Index ict = Input Tariff ict + µ t + δ c + θ i + ɛ ict 38 / 43
Measuring Tariffs on Intermediate Inputs. Product-level tariff data from TRAINS. Input-Output Tables from Nicita and Olarreaga s TPP dataset (original source is GTAP). These IO tables are homogeneous across countries and correspond to the early 1990 s. The availability of tariff data and input-output tables restricts the set of countries I consider. 39 / 43
Countries Considered Argentina Indonesia Thailand Bolivia Mexico Turkey Chile Morocco Uruguay China Nepal Venezuela Colombia Peru South Africa Ecuador Philippines India Sri Lanka 40 / 43
Effect of Tariffs on Imported Intermediate Inputs on the Number of Exported Products and on the Upstreamness/Downstreamness of Exports. Table VIIA Upstreamness/Downstreamness Index Number of Exported Products Input Tariff -0.007*** -0.14** 0.001 0.068 Input Tariff -0.26-0.07 (Standardized Coefficients) Year fixed effects Yes Yes Country fixed effects Yes Yes Industry fixed effects Yes Yes Number of Observations 731 732 R - squared 0.786 0.751 41 / 43
Conclusions. 42 / 43
High concentration of exports in low income countries. Trade liberalization leads to increased diversification of exports and imports, and to movements downstream along supply chains. There is a link between access to imported intermediate inputs and export diversification. 43 / 43