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Export Strategy (One)
 

Export Strategy (One)

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    Export Strategy (One) Export Strategy (One) Presentation Transcript

    • Today’s Presentation: Export Diversification, Deepening Regional Integration and Costs of Trade in East Asia and ASEAN-3 A Master Thesis Draft Prayoga Wiradisuria April 2009 Graduate Schol of Asia Pacific Studies
    • Preface • Last time I was researching on changing trade patterns of ASEAN-4 which was observed mainly through their net-export pattern (exhibit-1). A stedy increase in Intra-industrial Trade has also been observed (exhibit-2). Except for Philiippines, all countries have gone through export diversification • Building on that, the next research would be to study deeper this export diversification phenomenon in Indonesia, Malaysia, and Thailand (ASEAN-3) • Export diversification is important because it is the sign of increased productivity and correlated with economic growth. Export diversification is also the engine for intra-industrial trade • This research will learn the impact of trade facilitation to East-Asian’s performance on export diversification • This research then will learn how trade facilitation impacts ASEAN-3 on export diversification Keywords: Export diversification, regional trade integration, costs of trade, heterogenous firms model
    • Significance of ASEAN-3 ASEAN-3 has been leading ASEAN region in economic development and regional integration Socio-demography Economic Development ASEAN Population* (percent) Agriculture Manufacturing Services Indonesia 1.6 15% 45% 41% 57% Thailand 3.2 9% 47% 44% Malaysia 5.98% 42% 50% ASEAN-3 Phils CMLV Total Philippines 1.4 20% 33% 47% ASEAN GDP* Cambodia 0.5 33% 31% 37% (percent) Laos 0.6 50% 25% 25% Myanmar 0.2 43% 17% 40% 76% Vietnam 0.7 20% 39% 40% ASEAN-3 Phils CMLV Total Source: World Development Indicator *Excluding Singapore and Brunei **Excluding Singapore, Brunei and Myanmar 3
    • Significance of ASEAN-3 ASEAN-3’s trade of goods has been showing deepening integration with East Asia ASEAN-3 Export growth ASEAN-3 Export Composition to East Asia (1990=100) (percentage) 600 East Asia 5% 7% Agricultural, forestry, and fishery 10% 500 Rest of World 45% 400 69% 67% Manufacture commodities 300 200 45% 25% 26% Mineral commodities 100 1990 1995 2000 2005 1990 2006 2007 ASEAN-3 Import growth ASEAN-3 Import Composition to East Asia (1990=100) (percentage) 450 Agricultural, forestry, and fishery East Asia 400 350 300 Rest of World 94% 94% 89% Manufacture commodities 250 200 150 Mineral commodities 100 1990 1995 2000 2005 1990 2006 2007 Source: UN WITS Comtrade, Own calculation East Asia: ASEAN+3 minus Singapore and Brunei 4
    • Export Diversification One of ASEAN-3 significant achievement has been its succesful export revenue diversification Export Revenue Concentration* (Herfendahl Index, 4-digit SITC, ln value) 0 Herfendahl index 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 -0.5 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 -1 2 INA n Xi -1.5 MAL H=Σ i n -2 THA Σ Xi i -2.5 -3 Where: -3.5 i : a particular product n : total number of products -4 -4.5 Source: UN WITS Comtrade, Own calculation 5
    • Research Question If export diversification in East Asia and particularly ASEAN-3 can have positive impact on development and deepening regional integration, what would be the policy measures to support that process? Sub questions: • What is the impact of trade facilitation to trade diversification within of East-Asian region? • What would be the effect of trade facilitation to ASEAN-3’s export diversification` 6
    • Underlying theory Costs of Trade (1) Costs of trade measure • Broadly defined, trade costs include all costs incurred in getting a good to a final user other than the marginal cost of producing the good itself (Anderson & Wincoop, 2004). Transportation costs e.g. shipping cost Tariff e.g. ad valorem Direct measure Trade costs Policy costs e.g. from Tariff databases, Non-tariff e.g. custom procedure UN Doing Business database Inference Other costs e.g. information cost, currency cost e.g. From volume, price • Andersen and Wincoop estimated that the tax equivalent of representative international trade costs is as high as 74%. Costs for developing countries can be much higher. • Trade liberalization efforts generaly aims to reduce tariff costs and trade facilitation is aimed at reducing non- tariff costs • In this discussion, I’m going to use th term trade facilitation for both tariff and non-tariff barrier reduction 7
    • Underlying theory Measuring Export Diversification / Extensive Margin of Trade • The issue of measuring product variety has received relatively little attention due to its inherent difficulty (Feenstra and Kee, 2007) • Some of the methods are: Method Description Advantage Disadvantage Count data Accumulating the number of Straightforward interpretation, Detailed data (8 digit CN) only (Dennis & products exported in a given less bias, can be used for available for EU market Shepherd, 2007) period of time cross section and time series (Eurostat’s Comext database) Relative variety Total value of world exports in Widely available data, May have more bias (Feenstra, 1994) product lines exported by country frequently used in policy H devided by total value of world circles (UNCTAD, 2006) exports across all product Herfindhal-Hirschman Total value of world exports in Widely available data, less strong theoritical basis Index product lines exported by country frequently used in policy H devided by total value of world circles (UNCTAD, 2006) exports across all product • This research will use extensive margin of trade measurment by Feenstra (1994) 8
    • Underlying theory Extensive Margin of Trade and Trade Liberalization/Facilitation • The existing trade facilitation literature has focused almost exclusively on the potential consequences for aggregate trade flows1) • Extensive margin of trade is not an inconsequential property of trade flows that can safely be ignored. Rather, it plays a crucial role in explaining several important international economic phenomena2) • Export costs at the border have an effect on the number of goods being exported (extensive margin of trade)3) • Large responses of trade flows to small but long-lasting reductions in trade costs (driven by trade liberalization) are driven by a substantial response in the extensive margin of trade4) Extensive Heterogeneous + products margin of trade Homogeneous Trade products Preference Trade (development liberalization / Trade flow flow Heterogeneous perspective) facilitation Intensive products margin of trade Homogeneous products - 1) GPErsson (2008) in “Trade Facilitation and the Extensive and Intensive Margins of Trade” 2) Ghironiand Melitz (2004) Trade Flow Dynamics with Heterogeneous Firms 3) Dennis and Shepperd (2007) in “Trade Costs, Barrier to Entry, and Export Diversification in Developing Countries” 4) Kehoe and Ruhl (2002) in “How Important is the New Goods Margin in International Trade” 9
    • Underlying theory Theory of Heterogeneous Firms • Recently theory of heterogenous firm is getting important, pioneered by Melitz (2003) • It is a new approach to the modeling of international trade and is now starts to become popular in recent scholarly works • This theory explains that firms are heterogeneous in productivity • Firms ability to trade both in domestic and international market are influenced by variable and fixed costs applied. Simply explained, the model acknowledges that not all firms in a particular sector will produce and/or serve foreign market (export) • Reductions in barriers to trade → increase profits of exporters and reduce the export productivity cutoff → labor demand within the industry rises → increase in wages → profits of nonexporter decrease → less productive firms bankrupt 10
    • Research Question A Modified empirical model taken from Persson (2008) which separate homogenous and differentiated products will be used in this context Empirical model: Xijs β = β1 + β2ln(TFj) + β3ln(dij) + β4borderij + β5langij + β6colonyij + β7landlj + β8ln(Yj) + β9ln(Pj) + β10FTAj + β11ln(1+tariffij) + µi + regionj + diffs Legend Xijs : Extensive margin share of export Y : GDP from country j to country i in sector s P : Population TF : Costs of transaction FTA : FTA Dummy dij : distance between the tariffij : average tariff faced by country j’s exporter two countries’ capitals when exporting to country I borderij : common border µi : importer fixed effects langij : common language regionj : similarity of behavior of same region countries colonyij : common colonial hitory diffs : dummy for differentiated or homogenous products landl : landlock country 11
    • The Research in Summary If export diversification in East Asia and particularly ASEAN-3 can have positive impact on development and deepening regional integration, what would be the policy measures to support that process? Sub questions Model Countries to be involved • What is the impact of trade Cross-section analysis Indonesia, Malaysia, Thailand, facilitation to trade diversification using modified Parsson Philippines, China, South within of East-Asian region? equation Korea, Japan, Vietnam, Cambodia, Lao PDR • What would be the effect of trade Time series analysis using Indonesia, Malaysia, Thailand facilitation to ASEAN-3’s export simple regression diversification` technique Originality of this thesis • Heterogenous firms • Assymetric billateral trade • Accounts for fixed and variable • Commodity category break- trade costs down • Homogenous product / • East Asian economies heterogeneous product 12
    • Thank you for listening and the feedbacks 13
    • Appendix-1a Indonesia’s and Malaysia’s export structure have evolved… Indonesia (Net export, %) 100% Tropical A griculture 80% Raw Materials 60% Petroleum Machinery 40% Labor Intensive 20% Forest Products 0% ` Chemical -20% Cereals, etc. -40% Capital Intensive A nimal Products -60% 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 Malaysia (Net export, %) 100% Tropical A griculture 80% Raw Materials 60% Petroleum 40% Machinery Labor Intensive 20% Forest Products 0% Chemical -20% Cereals, etc. -40% Capital Intensive A nimal Products -60% 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
    • Appendix-1b …as also observed with those of Thailand and Philippines Thailand (Net export, %) 80% Tropical A griculture 60% Raw Materials 40% Petroleum 20% Machinery Labor Intensive 0% Forest Products -20% Chemical -40% Cereals, etc. -60% Capital Intensive A nimal Products -80% 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 Philippines (Net export, %) 60% Tropical A griculture 40% Raw Materials 20% Petroleum 0% Machinery Labor Intensive -20% Forest Products -40% Chemical -60% Cereals, etc. -80% Capital Intensive A nimal Products -100% 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
    • Appendix-2 Evidence suggests IIT in all ASEAN-4 countries have been forming substantially in the last 3 decades Intra-Industrial Trade (Grubel-Llyod Index, 4-digit SITC ver.1) Economic picture: 0.70 • The economies in general 0.65 enjoy gains in productivity 0.60 which leads to economies 0.55 Indonesia of scale 0.50 Malaysia 0.45 Thailand • Trade reform and liberalization took place 0.40 Philippines 0.35 • Market competition is 0.30 presence 0.25 0.20 • Consumers likely to benefit 0.15 from wider product 0.10 differentiation 0.05 • Growing income per capita 0.00 1970 1975 1980 1985 1990 1995 2000 2005 Source: UN Comtrade, Author’s calculation, no data for Thailand’s 1998 export figure
    • Appendix-3 DATA SOURCES Variables Data Sources Export/import UN Comtrade Distance Centre D'Etudes Prospectives et D'Informations Internationales (CEPII) Border Centre D'Etudes Prospectives et D'Informations Internationales (CEPII) Common language Centre D'Etudes Prospectives et D'Informations Internationales (CEPII) Colony Centre D'Etudes Prospectives et D'Informations Internationales (CEPII) Landlocked World Bank’s World Development Indicators GDP World Bank’s World Development Indicators Population ADB Regional Integration Center FTA Average applied Tariff from MAcMap Database or TRAIN Tariff John Haveman’s International Trade Data on Rauch Classification Rauch Classification Proxy for export transaction cost: The number of all documents needed to Export documents export a good across the border from UN’s Doing Business Database Proxy for export transaction cost: The costs ascociated with all the procedures Export costs required to export a good across border from UN’s Doing Business Database Countries to be involved Indonesia, Malaysia, Thailand, Philippines, Vietnam, Lao PDR, Cambodia, China, South Korea, Japan 17
    • APPENDIX Edward Leamer’s 10 industrial clusters Aggregates SITC Aggregates SITC Aggregates SITC Raw Materials Tropical Agriculture Cereals, etc. Crude fertilizer and minerals 27 Vegetables 05 Cereals 04 Metalliferrous ores 28 Sugar 06 Feeds 08 Coal and coke 32 Coffee 07 Miscellaneous 09 Gas, natural, and manufactured 34 Beverages 11 Tobacco 12 Electrical current 35 Crude rubber 23 Oil seeds 22 Nonferrous metal 68 Textile fibers 26 Capital intensive Animal oil and fat 41 Animal Products Leather 61 Fixed vegetable oils 42 Live animals 00 Rubber 62 Meat 01 Textile yarn and fabric 65 Labor Intensive Dairy products 02 Iron and steel 67 Nonmetal minerals 66 Fish 03 Other manufacture metals 69 Furniture 82 Hides and skins 21 Sanitary fixtures and fittings 81 Travel goods and hanbags 83 Crude animals and vegetables 29 Art apparel 84 Processed animal and vegetable oils 43 Machinery Footwear 85 Other animal products 94 Power generating 71 Miscellaneous manufactured articles 89 Specialized 72 Postal packaging, not classified 91 Chemical Metalworking 73 Special transaction, not classified 93 Organic 51 General industrial 74 Coins (non-gold) 96 Inorganic 52 Office and data processing 75 Dyeing and tanning 53 Telecommunications and sound 76 Petroleum Medical and pharmaceutical products 54 Electrical 77 Petroleum and derivatives 33 Essences and perfumes 55 Road vehicles 78 Fertilizers 56 Other transportation vehicles 79 Forest Products Explosives and pyrotechnics 57 Professional and scientific instruments 87 Lumber, wood, and cork 24 Artificial resins and plastics 58 Photographic apparatus 88 Pulp and waste paper 25 Pther chemical materials 59 Firearms and ammunition 95 Cork and wood manufacturers 63 Paper 64 18