Today’s Presentation:

Trade Facilitation, Trade Costs, and Export Diversification
                   in East Asia & Pacif...
PREFACE



              East Asia and Pacific (EAP) region has seen changing trade pattern in many respects.
One importan...
CONTENT




• Export diversification and development

• Introductory findings: Trends in export diversification

• Researc...
EXPORT DIVERSIFICATION AND DEVELOPMENT

                                          THEORETICAL FOUNDATION
                 ...
EXPORT DIVERSIFICATION AND DEVELOPMENT

                         SPECIALIZATION VS DIVERSIFICATION IN DISCUSSIONS
  Endowm...
CONTENT




• Export diversification and development

• Introductory findings: Trends in export diversification

• Researc...
TRENDS IN EXPORT DIVERSIFICATION

         Indeed the world has seen growing diversification in the last 3 decades


     ...
TRENDS IN EXPORT DIVERSIFICATION

In East Asia, diversification is characterized by switch towards non basic primary goods...
TRENDS IN EXPORT DIVERSIFICATION

          ASEAN & China experience the highest manufacturing sector increases


        ...
TRENDS IN EXPORT DIVERSIFICATION

   EAP diversifies its export portfolio in both differentiated and homogeneous fronts
Ec...
• Export diversification and development

• Introductory findings: Trends in export diversification

• Research propositio...
RESEARCH PROPOSITION


OBJECTIVE
• To investigate how trade facilitation measures in East Asia & Pacific affect export
  d...
RESEARCH PROPOSITION

                                  Research Positioning



    Heterogeneous firm                    ...
CONTENT




• Export diversification and development

• Introductory findings: Trends in export diversification

• Researc...
HETEROGENEOUS FIRMS THEORY, EXPORT DIVERSIFICATION, AND TRADE BARRIERS


  • Theory of heterogeneous firms assumes that fi...
TRADE BARRIER AND HOMOGENEOUS-DIFFERENTIATED GOODS

• Cheney (2008) argued in his work that the extensive and intensive ma...
CONTENT




• Export diversification and development

• Introductory findings: Trends in export diversification

• Researc...
Empirical Model & Regression Results


Measuring Export Diversification / Extensive Margin of Trade

• Three frequently us...
THE REGRESSION MODELS


A modified empirical model as also used by Persson (2008) is used*


Empirical models:

 1      Xi...
THE RESULT

Regression Result using Rauch: Conservative Classification
  Model                 Model I           Model II ...
THE RESULT

Regression Result using Rauch: Liberal Classification
    Model                 Model I            Model II   ...
CONTENT




• Export diversification and development

• Introductory findings: Trends in export diversification

• Researc...
CONCLUDING REMARKS

FINDINGS
    Trade Facilitation
    • The research investigates the relationship between trade facilit...
CONCLUDING REMARKS

Academic Contribution
      • This research expands the regression models of export diversification, t...
Thank you for listening and the feedbacks




                                            25
APPENDIX - 1

                               Limitations & Future Research

Some limitations

• Despite the application of...
APPENDIX - 2

                                              Selected References

Heterogenous firms          Melitz, M. J....
APPENDIX - 3

              THE DECISION TO EXPORT: HETEROGENEOUS FIRMS THEORY

Before trade liberalization…
             ...
APPENDIX - 4
                       Trade Facilitation Index: East Asia & Pacific


              Documents    Time       ...
APPENDIX - 5

                                                    Tariff and Entry Cost


  Between                       ...
APPENDIX - 6

            Trade Theories and Their Ability to Explain Stylized Facts about Trade


                       ...
APPENDIX - 7

                                   Model Comparison Summary

                      Persson                  ...
APPENDIX - 8

                                                Data Sources

Variables                        Data Sources
...
APPENDIX - 9

                                 Thesis structure

Chapter   Content

I         Introduction

II        Chan...
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Export Strategy (Two)

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Export Strategy (Two)

  1. 1. Today’s Presentation: Trade Facilitation, Trade Costs, and Export Diversification in East Asia & Pacific A Master Thesis Draft PART 2 : Findings & Empirical Results Prayoga Wiradisuria 20 June 2009 Graduate School of Asia Pacific Studies
  2. 2. PREFACE East Asia and Pacific (EAP) region has seen changing trade pattern in many respects. One important aspect yet has received little attention is the growth in export varieties in region’s intra-regional trade. As theoretical evidence has shown the inevitable connection between export diversification and economic growth, investigations towards understanding factors affecting export diversification armed with recent development in trade theory is getting popularity. This research investigates how trade barriers and export diversification in EAP economies are linked. An empirical analysis based on heterogeneous firms trade theory which allow more relaxed assumption is used and incorporates a number of trade barriers which includes tariff, entry cost, export cost, and transportation cost. Ultimately this research learns how trade facilitation measures, as represented by trade facilitation index, have positive and significant effect towards extensive margin of trade (export variety) in EAP’s intra-regional trade. This finding is consistent with Persson’s (2008) and Dennis & Shepperd (2007). Separated treatement for diferentiated goods and homogeneous goods further reveals how trade barriers especially affect export diversification on both type of goods. However, its mixed result suggests that Cheney ‘s (2008) theory is not materialized in EAP context. Keyword: Extensive margin of trade, heterogeneous firms theory, homogeneous and differentiated goods, trade barriers, trade facilitation 2
  3. 3. CONTENT • Export diversification and development • Introductory findings: Trends in export diversification • Research proposition • Heterogeneous firms theory, trade barriers and export diversification • Empirical model & regression results • Concluding remarks 3
  4. 4. EXPORT DIVERSIFICATION AND DEVELOPMENT THEORETICAL FOUNDATION Export diversification is an integrated part of development By definition By definition • Produce less output per worker • Produce more output per worker • Presumably produce less • Presumably produce more challenging products challenging products Structural transformation Accummulation of physical, human, & institutional endowments Increased productivity Education More (produce more) Poor Technology spill-over income Rich Investment (Jaffe, Trajtemberg and country Henderson 1993) Increased capability Reduced country (produce more Policy risks sophisticated products) “Learning by doing” effect (Arrow 1962, Bardhan 1970) Source: Hausmann, Ricardo and Klinger, Bailey (2006). “Structural Transformation and Patterns of Comparative Advantage in the Product Space”. Center for International Development, Working Paper No. 128, Harvard University 4
  5. 5. EXPORT DIVERSIFICATION AND DEVELOPMENT SPECIALIZATION VS DIVERSIFICATION IN DISCUSSIONS Endowments-driven Diversification specialization Industrial classficiation / Number of product Value Endowments* (in kind)** (in million USD)** Example Animal products 44 80 Capital intensive 265 729 Cereals, etc 88 122 Chemical 228 929 Forest products 60 195 Labor intensive 230 972 Machinery 280 1,435 Petroleum 15 27 Raw materials 99 432 Tropical agriculture 78 197 * Based on Edward Leamer’s industrial classification **Based on SITC ver.2 classification, 5 digit code goods, 2006, 163 countries Source: UN Comtrade, Own calculation 5
  6. 6. CONTENT • Export diversification and development • Introductory findings: Trends in export diversification • Research proposition • Heterogeneous firms theory, trade barriers and export diversification • Empirical model & regression results • Concluding remarks 6
  7. 7. TRENDS IN EXPORT DIVERSIFICATION Indeed the world has seen growing diversification in the last 3 decades Herfindahl Index CAGR Region No. of countries 1970 2000 (%) South America 10 0.354 0.204 -1.8 North America 3 0.073 0.07 -0.1 European Union 14 0.076 0.063 -0.6 Other European Countries 9 0.163 0.124 -0.9 East Asia 9 0.151 0.108 -1.1 Africa 6 0.268 0.20 -1.0 Source: Bebczuk, R.N and Berrettoni, N.D, (2006). “Explaining Export Diversification: An Empirical Analysis”. CAF Research Program on Development Issues, Department of Economics, Universidad Nacional de La Plata, Argentina, and own calculation. 7
  8. 8. TRENDS IN EXPORT DIVERSIFICATION In East Asia, diversification is characterized by switch towards non basic primary goods Basic primary product share to total export Country’s share in OECD’s imports (%) 1966 - 1970 1996 - 2000 1966 - 1970 1996 - 2000 4% Cambodia 99% 0.01 0.02 9% China 70% 0.41 4.73 Fiji 99% 52% 0.00 0.01 Hong Kong 0.78 0.72 India 59% 20% 0.70 0.63 Indonesia 98% 45% 0.48 0.96 9% Korea, Rep 34% 0.21 1.81 Lao PDR 64% 18% 0.00 0.00 Malaysia 97% 14% 0.59 1.29 Mongolia 95% 55% 0.00 0.00 Myanmar 99% 26% 0.03 0.01 13% Philippines 90% 0.57 0.06 5% Singapore 78% 0.12 1.15 Thailand 96% 23% 0.22 0.98 Vietnam 86% 39% 0.02 0.17 Source: Bognalia, F. and Fukasaku, K. (2003). “Export Diversification in Low Income Countries: An International Challenge After Doha.” OECD Development Center Working Paper, 209. 8
  9. 9. TRENDS IN EXPORT DIVERSIFICATION ASEAN & China experience the highest manufacturing sector increases EA ASEAN NIES China Japan Number of product traded worldwide in 1990- 2000- 1990- 2000- 1990- 2000- 1990- 2000- 1990- 2000- 1990- 2000- 1994 2004 1994 2004 1994 2004 1994 2004 1994 2004 1994 2004 2005 (in kind)* -43% -62% -27% 15.7 13.7 -51% 12.1 -41% 9.0 8.8 4.7 5.2 Agriculture 2.3 1.1 1.0 33 7.0 4.1 -24% 16.5 +14% 12.6 -36% 11.3 9.9 6.4 Mining & fuels 2.1 3.5 4.1 1.7 21 5.4 5.1 1.3 +15% +16% 92.7 93.2 90.1 95.8 93.0 +3% 86.1 88.7 75.6 78.5 74.9 76.9 65.2 Manufacture 387 *Based on SIC broad 4-digit nomenclature Machinery (power generator, industrial & metal working, office & telecom, electrical, autos, other transport. Source: Urata, Shujiro (2007). “The Changing Patterns of International Trade in East Asia”, and own calculation 9
  10. 10. TRENDS IN EXPORT DIVERSIFICATION EAP diversifies its export portfolio in both differentiated and homogeneous fronts Economy Goods Average EM* EM Share (%) Value Share (%) Type* 1990-1994 2002-2006 1990-1994 2002-2006 1990-1994 2002-2006 Indonesia Differentiated 410 633 68 68 36 29 • It is observable that East Asia & Homogeneous 190 299 32 32 64 71 Pacific economies are exporting total 601 932 100 100 100 100 Malaysia Differentiated 585 646 70 65 61 57 more kind of products in both types Homogeneous 245 349 30 35 39 43 (differentiated & homogeneous) total 829 995 100 100 100 100 Thailand Differentiated 535 660 72 68 63 54 • ‘Differentiated-product’ type has Homogeneous 204 314 28 32 37 46 been dominating both in kind and total 739 975 100 100 100 100 value Philippines Differentiated 214 382 70 74 35 72 Homogeneous 91 137 30 26 65 28 • The shares of both differentiated total 305 520 100 100 100 100 and homogeneous types remain Singapore Differentiated 726 739 65 65 61 72 Homogeneous 395 393 35 35 39 28 unchanged total 1121 1132 100 100 100 100 Australia Differentiated 639 708 68 68 68 68 Homogeneous 298 328 32 32 32 32 total 938 1036 100 100 100 100 Japan Differentiated 750 742 66 64 66 64 Homogeneous 384 415 34 36 34 36 total 1134 1157 100 100 100 100 China Differentiated 771 813 65 64 84 85 Homogeneous 421 452 35 36 16 15 total 1192 1265 100 100 100 100 Taiwan Differentiated 700 710 68 65 75 66 Homogeneous 328 378 32 35 25 34 total 1028 1088 100 100 100 100 New Zealand Differentiated 413 460 74 73 74 73 Homogeneous 148 170 26 27 26 27 total 561 630 100 100 100 100 Source: UN Comtrade Database, Own calculation 10
  11. 11. • Export diversification and development • Introductory findings: Trends in export diversification • Research proposition • Heterogeneous firms theory, trade barriers and export diversification • Empirical model & regression results • Concluding remarks 11
  12. 12. RESEARCH PROPOSITION OBJECTIVE • To investigate how trade facilitation measures in East Asia & Pacific affect export diversities in intra-regional trade RESEARCH QUESTIONS • Does trade facilitation measures influence positively export diversity in EAP intra- regional trade? • Does trade facilitation measures influence export diversity of diferentiated products more than it influences homogeneous products? THE RESEARCH ACCOMODATES • Recent trade theory which allows relaxed assumptions • The inclusion of different types of trade barriers (tariff, non-tariff, and transportation costs) • The different nature of goods based on Rauch’s classification • The different approaches in measuring extensive margin of trade 12
  13. 13. RESEARCH PROPOSITION Research Positioning Heterogeneous firm Export diversification • Melitz • Baldwin • Hummels & Klenow • Flam & Nordstorm • OECD working paper • Fukushima, Marcelo & Kikuchi • World Bank working paper • Dennis & Shepperd • UNDP report • Persson • Bernard, Jensen, Schott Trade costs • Andersen & Wincoop • Prabir De • Milner, Morressey & Zgovu • Helble, Shepherd & Wilson 13
  14. 14. CONTENT • Export diversification and development • Introductory findings: Trends in export diversification • Research proposition • Heterogeneous firms theory, trade barriers and export diversification • Empirical model & regression results • Concluding remarks 14
  15. 15. HETEROGENEOUS FIRMS THEORY, EXPORT DIVERSIFICATION, AND TRADE BARRIERS • Theory of heterogeneous firms assumes that firms are different in their productivity • Therefore firms reaction to a set of given variable and fixed costs are different. • Some firms can export, some can only sell domestically, some cease from producing • Each product variety is modeled as a single firm • Different export products are therefore represented by the density of firms involved in export • A country’s export diversification is therefore the growth at the extensive (new products) margin of trade • Consequently, country’s export diversification is influenced by fixed and variable costs involved in trade (trade barriers) • For detailed mathematical modelling see Chaney (2008); Fukushima, Kikuchi & Toru (2008) • See Appendix-3 for simplified theoretical illustration Trade Barrier componenst used Explanation •Export costs • Includes burdensome in procedure: (i) number of days needed to export, (ii) number of documenets to be completed) and cost of export: (iii) cost of export per container. The three indicators are converted into Trade Facilitation (TF) Index using Factor Analysis for the weights. Results are in Appendix-4 •Entry cost • Entry cost is proxied by costs to start a business (income per capita) in target/importing country.. (see Appendix-5) •Tariff • Import tariff between of a country from specific exporting country (see Appendix-5) •Transportation cost • Proxied by distance from CEPII database 15
  16. 16. TRADE BARRIER AND HOMOGENEOUS-DIFFERENTIATED GOODS • Cheney (2008) argued in his work that the extensive and intensive margins are influenced differently by trade barriers for different types of goods. • Goods which have low elasticity of substitution (σ) will have their extensive margins sensitive to changes in trade barriers. And, accordingly, goods which have high elasticity of substitution are less sensitive to changes in trade barriers. • In this research, this translates to when there is reduction in export barriers (or increase in trade facilitation index) increases in extensive margin of trade shall be larger in differentiated goods (low σ) than in homogeneous goods (high σ) • The intuition for the above is that when goods are hightly differentiated, the demand for each individual variety is relatively insensitive to changes in trade costs. • Therefore this research will also investigate whether the premise is empirically materialized in East Asia-Pacific context East Asia & Pacific intra-regional trade Average EM* EM Share (%) Value Share (%) 1990-2004 2002-2006 2002-2006 2002-2006 2002-2006 2002-2006 Differentiated 648 718 65 63 68 69 Homogeneous 349 414 35 37 32 31 *approached by count method using 5 digit SITC-2 code. Source: UN Comtrade database, own calculation. 16
  17. 17. CONTENT • Export diversification and development • Introductory findings: Trends in export diversification • Research proposition • Heterogeneous firms theory, trade barriers and export diversification • Empirical model & regression results • Concluding remarks 17
  18. 18. Empirical Model & Regression Results Measuring Export Diversification / Extensive Margin of Trade • Three frequently used methods are: Method Description Formula Regression Count data Accumulating the number of Count Poisson (Dennis & products exported in a given Shepherd, 2007) period of time Relative variety Total value of world exports in OLS (Feenstra, 1994) product lines exported by country H devided by total value of world exports across all product Herfindhal-Hirschman Using inverse export OLS Index concentration techique • Due to their inherited differences, this research will exercise the three methods 18
  19. 19. THE REGRESSION MODELS A modified empirical model as also used by Persson (2008) is used* Empirical models: 1 Xijs β = β1 + β2ln(1+TFj) + β3ln(dij) + β4borderij + β5langij + β6colonyij + β7landlj + β8ln(YiYj) + β9ln(PiPj) + β10ln(entryj) + β11ln(1+tariffij) + diffs 2 Xijs β = δ1homogen* ln(1+TFj) + δ2hetero* ln(1+TFj) + z α Xijs : extensive margin PiPj : Joint population i and j from country j to country i in sector s entryi : Entry cost at i TF : trade facilitation index tariffij : average tariff faced by country j’s exporter dij : distance between the when exporting to country I two countries’ capitals diffs : dummy for differentiated or homogenous products borderij : common border langij : common language homogen : dummy for homogeneous products colonyij : common colonial hitory hetero : dummy for heterogeneous products landl : landlock country z : represents all explanatory v ariables except TF YiYj : joint GDP i and j *See Appendix-7 for comparison with models from Persson and Dennis & Shepperd 19
  20. 20. THE RESULT Regression Result using Rauch: Conservative Classification Model Model I Model II Model I Model II Model I Model II Feenstra Feenstra Count Count Dependent variable (OLS) (OLS) HHI (OLS) HHI (OLS) (Poisson) (Poisson) TF 0.222 *** 0.389 *** 0.590 ** [0.079] [0.064] [0.268] TF_heterogeneous 0.152 * 0.514 *** 0.453 [0.085] [0.101] [0.303] TF_homogeneous 0.292 ** 0.265 *** 1.021 * [0.130] [0.065] [0.530] Tariff -0.481 *** -0.481 *** -0.122 -0.122 -0.289 -0.289 [0.085] [0.085] [0.095] [0.094] [0.371] [0.371] Entry Cost -0.011 *** -0.011 *** -0.015 *** -0.015 *** -0.045 *** -0.045 *** [0.004] [0.004] [0.005] [0.005] [0.018] [0.018] Border 0.036 0.036 0.039 0.039 0.144 * 0.144 * [0.022] [0.022] [0.042] [0.042] [0.076] [0.076] Colony -0.071 * -0.071 * 0.140 ** 0.140 ** -0.081 -0.081 [0.038] [0.038] [0.066] [0.065] [0.101] [0.101] Land lock -0.327 *** -0.327 *** -0.001 -0.001 -3.240 *** -3.240 *** [0.025] [0.025] [0.024] [0.024] [0.532] [0.532] Language 0.020 0.020 0.024 0.024 0.112 ** 0.112 ** [0.013] [0.013] [0.017] [0.017] [0.052] [0.052] Distance -0.062 *** -0.062 *** -0.020 ** -0.020 ** -0.236 *** -0.236 *** [0.008] [0.008] [0.009] [0.009] [0.029] [0.029] Joint GDP 0.029 *** 0.029 *** 0.007 * 0.007 * 0.143 *** 0.143 *** [0.005] [0.005] [0.004] [0.004] [0.013] [0.013] Joint Population 0.009 ** 0.009 ** 0.026 *** 0.026 *** 0.024 * 0.024 * [0.004] [0.004] [0.005] [0.005] [0.014] [0.014] Dummy Rauch 0.098 *** 0.177 ** 0.046 *** -0.094 * 1.128 *** 1.451 *** [0.011] [0.088] [0.012] [0.058] [0.045] [0.344] Constant -0.932 *** -0.972 *** -1.221 *** -1.151 *** -0.497 -0.742 [0.191] [0.199] [0.222] [0.212] [0.559] [0.617] Observation 364 364 364 364 364 364 Standard errors are in bracket. Statistical significance is indicated by *(10%), **(5%), and ***(1%) 20
  21. 21. THE RESULT Regression Result using Rauch: Liberal Classification Model Model I Model II Model I Model II Model I Model II Feenstra Feenstra HHI HHI Count Count Dependent variable (OLS) (OLS) (OLS) (OLS) (Poisson) (Poisson) TF 0.158 ** 0.398 *** 0.590 ** [0.072] [0.063] [0.267] TF_heterogeneous 0.111 0.493 *** 0.436 [0.082] [0.098] [0.313] TF_homogeneous 0.205 * 0.302 *** 0.963 ** [0.115] [0.068] [0.482] Tariff -0.422 *** -0.422 *** -0.144 -0.144 -0.289 -0.289 [0.077] [0.077] [0.092] [0.092] [0.370] [0.370] Entry Cost -0.010 *** -0.010 *** -0.017 *** -0.017 *** -0.045 *** -0.045 *** [0.004] [0.004] [0.005] [0.005] [0.017] [0.017] Border 0.034 * 0.034 * 0.040 0.040 0.144 * 0.144 * [0.020] [0.020] [0.041] [0.041] [0.075] [0.075] Colony -0.095 ** -0.095 ** 0.140 * 0.140 ** -0.081 -0.081 [0.040] [0.040] [0.064] [0.064] [0.101] [0.101] Land lock -0.316 *** -0.316 *** 0.000 0.000 -3.240 *** -3.240 *** [0.028] [0.028] [0.024] [0.024] [0.531] [0.531] Language 0.023 * 0.023 * 0.023 0.023 0.112 ** 0.112 ** [0.012] [0.012] [0.017] [0.016] [0.051] [0.051] Distance -0.060 *** -0.060 *** -0.018 ** -0.018 ** -0.236 *** -0.236 *** [0.007] [0.007] [0.009] [0.009] [0.029] [0.029] Joint GDP 0.037 *** 0.037 *** 0.008 ** 0.008 ** 0.143 *** 0.143 *** [0.005] [0.005] [0.004] [0.004] [0.013] [0.013] Joint Population 0.004 0.004 0.026 *** 0.026 *** 0.024 * 0.024 * [0.004] [0.004] [0.005] [0.005] [0.014] [0.014] Dummy Rauch 0.058 *** 0.111 0.029 *** -0.078 0.871 *** 1.169 *** [0.010] [0.080] [0.012] [0.058] [0.042] [0.322] Constant -1.059 *** -1.086 *** -1.283 *** -1.229 *** -0.308 -0.520 [0.185] [0.192] [0.215] [0.207] [0.557] [0.603] Observation 364 364 364 364 364 364 Standard errors are in bracket. Statistical significance is indicated by *(10%), **(5%), and ***(1%) 21
  22. 22. CONTENT • Export diversification and development • Introductory findings: Trends in export diversification • Research proposition • Heterogeneous firms theory, trade barriers and export diversification • Empirical model & regression results • Concluding remarks 22
  23. 23. CONCLUDING REMARKS FINDINGS Trade Facilitation • The research investigates the relationship between trade facilitation and the etensive margin of trade for different types of goods • Trade facilitation indeed influences export diversification positively and significantly (at 1% and 5%). • This finding holds true for all three methods of export diversication measures. • This findings also holds true for the two versions of Rauch’s classification of goods and is also consistent with Persson’s (2008) work. • When homogeneous and differentiated goods are allowed to have differenet coefficients, the regressions show mixed results. • Therefore there is no clear evidence in this case to support the theoretical model (Chaney, 2008) which predict that differentiated products will be influenced the most by trade facitlitation measures compared to homogeneous products. There are probably unique features of EAP intra- regional trades which needs to be researched. Tariff and Trade Costs • Tariff negatively influences export diversification. Significance is mixed for different types of export diversification measurement methods and different Rauch’s classification of goods. • Trade Costs (entry cost and transportation cost) negatively influence export diversification. The correlations are significant for all export diversification measurement methods and Rauch’s classification of goods. • The results are consistent with Dennis and Shepperd (2007) 23
  24. 24. CONCLUDING REMARKS Academic Contribution • This research expands the regression models of export diversification, trade facilitation and trade costs used by Parsson, Dennis and Shepperd. • The model accomodates relaxed trade theory assumptions thus complies with heterogeneous firms theory of trade (Melitz, 2003) • The model investigates further trade facilitation impact to both differentiated and homogeneous products. • The research exercised three export diversification measures to provide comparisons and robustness check. • Trade facilitation indicator is approached using index measurement, which employed factor analysis. Such approach is also exercised by Helble, Shepherd, and Wilson (2007) to get trade transparency index. • Mostlikely, this is the first of such research performed for East Asia and Pacific intra-regional trade Policy Implications • As export diversification is possitively correlated with economic development, countries in East Asia and Pacific may implement or accelerate their trade facilitation measures to increase their extensive margin of trade. • At the same time tariff and trade costs reduction measures also increases export diversification • Regional trade in goods integration therefore should look at • East Asia’s role as production hub which requires more and more sophisticated kinds of products being traded intra-regionally can be strengthen by such measures explained above. 24
  25. 25. Thank you for listening and the feedbacks 25
  26. 26. APPENDIX - 1 Limitations & Future Research Some limitations • Despite the application of more relaxed assumptions in the heterogeneous firms trade theory, some assumptions may not fulfilled in the real world. For example, not all firms have ultimate goal to export, and not all exporters will export to all countries given the required productivity level • Despite the incorporation of more trade costs and trade facilitation elements, a number of other elements such as domestic transportation costs are not yet represented • The research uses limited number of sample due to data sufficiency. Larger number of samples may represents East Asia & Pacific region better. • Developing and developed economies are treated equally in this model. Due to potentially different nature of developed and developing countries in the region with regards to export diversification, separated treatment may represent better model • Cross section anlysis alone may limit the ability to extract conclusion Future research • Time serries or panel data research may provide more comprehensive pictures of the relations between export diversification, trade costs, and trade facilitation measures which probably vary between countries or groups of countries. • Individual country analysis as well as firm-level analysis shall provide useful complementary insights to what has manifested in the regional economy • Export diversification may be an important element in regional trade integration. More research in revealing the correlation shall provide important insights and tools for regional policy making 26
  27. 27. APPENDIX - 2 Selected References Heterogenous firms Melitz, M. J. (2003). “The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry theory & Trade Productivity.”Econometrica 71(6):1695 1725. Fukushima, M. and Kikuchi, T (2008). “A Simple Model of Trade with Heterogeneous Firms and Trade Policy.” MPRA Paper No. 9573. Trade costs and Trade Hummels, D. (2001). "Time as a Trade Barrier." GTAP Working Papers 1152, Center for Global Trade faciliation Analysis, Department of Agricultural Economics, Purdue University. Anderson, J. and Wincoop, E. (2004). “Trade Costs”. NBER. http://fmwww.bc.edu/ec-p/wp593.pdf. Accessed: 15 March 2009. Export diversification & Hummels D. and Klenow, P.J (2002). "The Variety and Quality of a Nation's Trade." NBER Working Development Papers 8712, National Bureau of Economic Research, Inc. Factor analysis for trade Helble, M. Shepherd, B. and J.S. Wilson (2007) “Transparency & Trade Facilitation in The Asia Pacific”. facilitation The World Bank Changing Trade Pattern Urata, S. (2007). “The Changing Patterns of International Trade in East Asia”. A New East Asia: Toward in East Asia a Regional Community, editor: Kazuko Mori and Kenichiro Hirano (2007) NUS Press: Singapore Export Diversification Persson, M. (2008). “Trade Facilitation and the Extensive and Intensive Margin of Trade” and Trade Facilitation http://www.nek.lu.se/nekmpe/Persson_2008.pdf. Accessed: 15 March 2009. Dennis, A. And Shepherd, B. (2007). “Trade Costs, Barriers to Entry, and Export Diversification in Developing Countries”. The World Bank. 27
  28. 28. APPENDIX - 3 THE DECISION TO EXPORT: HETEROGENEOUS FIRMS THEORY Before trade liberalization… • Productivity threshold is composed of fixed cost & variable cost 9 9 9 • Falling trade costs mean greater profits for exporters, which are also 7 7 the most productive firms, because of their increased access to 5 5 external markets and lower per unit costs net of trade. 3 3 • Higher export profits pull higher productivity firms from competitive 1 fringe into the market, raising productivity threshold for market entry, Domestic Export forcing the least productive non-exporters to shut down. 3 market 8 market • Higher export profits reduct the productivity threshold for exporting, increasing the number of firms which export (more export varieties) After trade liberalization… 9 9 9 • Therefore trade liberalization increases industry productivity through resource reallocation 7 7 7 5 5 3 The application of gravity-equation-like model is elaborated in: 1 Domestic Export market market Helpman, Melitz, Rubinstein (2008) in “Estimating Trade Flows: 4 7 Trading Partners and Trading Volumes” Chaney (2008) in “Distorted Gravity: The Intensive and Extensive Margins of International Trade” x Firm productivity x Productivity threshold Source: Bognalia, F. and Fukasaku, K. (2003). “Export Diversification in Low Income Countries: An International Challenge After Doha.”, etc. 28
  29. 29. APPENDIX - 4 Trade Facilitation Index: East Asia & Pacific Documents Time Cost for export for export to export Trade Facilitation Index* Economy (number) (days) (US$ per cont) 0.0 0.2 0.4 0.6 0.8 1.0 Australia 5 12 795 Australia 0.81 China 6 18 335 China 0.83 Hong Kong 6 13 425 Hong Kong 0.84 Indonesia 0.68 Indonesia 7 25 546 Japan 0.83 Japan 4 10 989 Korea 0.81 Korea 5 12 780 Malaysia 0.75 Singapore 1.00 Malaysia 7 18 432 Thailand 0.50 Mongolia 10 58 1807 Vietnam 0.71 New Zealand 7 10 725 … … … … *Weighted index using factor analysis. Vietnam 6 24 669 See also Helble, Shepherd, and Wilson (2007) Source: UN Doing Business Database, Own calculation, 2006 figures. 29
  30. 30. APPENDIX - 5 Tariff and Entry Cost Between Tariff* Between Tariff* Economy Entry cost** AUS-CHN 0.039345 IDN-AUS 0.078617 Australia 1.9 AUS-HKG 0.039348 IDN-CHN 0.086526 China 13.6 AUS-IDN 0.036683 IDN-HKG 0.08187 Hong Kong 3.4 AUS-JPN 0.038313 IDN-JPN 0.078911 Indonesia 101.7 AUS-KOR 0.040294 IDN-KOR 0.079808 Japan 10.7 AUS-MYS 0.038769 IDN-MYS 0.061435 15.7 Korea AUS-NZL 0.039692 IDN-NZL 0.082649 20.9 Malaysia AUS-PHL 0.039421 IDN-PHL 0.064357 AUS-SGP 0.036612 IDN-SGP 0.053547 Thailand 6.1 … … … … Vietnam 27.6 AUS-VNM 0.040351 IDN-VNM 0.062271 *Total tariff, ad valorem equivalent in 2006 **Proxied by cost to start a business (income/capita) in 2006 Source: CEPII database, UN Doing Business database 30
  31. 31. APPENDIX - 6 Trade Theories and Their Ability to Explain Stylized Facts about Trade “Old” Trade “New” Trade Integrated Heterogeneous Theory Theory Model Firms Ricardo (1817) Krugman (1980) Helpman and Melitz (2003) Stylized Facts Heckscher (1919) Krugman (1985) Bernard et al. (2003) Ohlin (1933) Intra-industry Trade No Yes Yes Yes Exporters and non-exporters within industries No No No Yes Exporters are more productive than non- No No No Yes exporters within industries Trade liberalization raises industry productivity No No No Yes through realocation Net changes in employment across industries Yes No Yes No following trade liberalization Simutaneous gross job creation and destruction No No No Yes within industries following trade liberalization Source: Bernard, Jensen, Redding, Schott (2007) in “Firms in International Trade” 31
  32. 32. APPENDIX - 7 Model Comparison Summary Persson Dennis & Shepperd Wiradisuria Trade Area • Developing countries export to • Developing countries export to • Intra-regional exports in East EU-25 market EU market Asia & Pacific Extensive margin • Count method using Eurostat • Count method using Eurostat • Count method using 6-digit 8-digit CN 8-digit CN HS code • Extensive Margin Share • Feenstra method • Feenstra method • HHI-method • HHI-method Export costs • Number of days to export • Costs of exporting • Trade facilitation index composed of: •Number of days to export •Number of documents •Costs of exporting Tariff • EU import tariff • EU Import tariff • Tariffs from MacMAp database Entry cost • n/a • Cost (income/capita) to start a • Cost (income/capita) to start a business business Transportation cost • Distance • Distance • Distance Types of goods • Overall, homogeneous and • Overall & manufacturing only • Overall, homogenous & differentiated differentiated 32
  33. 33. APPENDIX - 8 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 Centre D'Etudes Prospectives et D'Informations Internationales (CEPII) GDP World Bank’s World Development Indicators Population World Bank’s World Development Indicators Tariff Average applied Tariff from MAcMap Database or TRAIN Rauch Classification John Haveman’s International Trade Data on Rauch Classification Export documents The number of documents needed to export from UN’s Doing Business Database Cost of exporting Cost to export (USD/container) from UN’s Doing Business Database Days to export Number of days needed to export from UN’s Doing Business Database Entry cost All the costs income/capita to start a business from UN’s Doing Business Database Economies involved in calculation Australia, China, Hong Kong, Indonesia, Japan, Korea, Malaysia, Mongolia, New Zealand, Philippines, Singapore, Taiwan, Thailand, Vietnam 33
  34. 34. APPENDIX - 9 Thesis structure Chapter Content I Introduction II Changing pattern in East Asia/Asia-Pacific trade III Theoritical development 3.1 Development of trade theories 3.2 Theory of heterogeneous firms trade 3.3 Homogeneous and differentiated goods 3.4 Trade barriers and trade facilitation measures IV Empirical model and result 4.1 Empirical models 4.2 Empirical models comparisons 4.2 Empirical Result 4.3 Interpreation and policy implication V Conclussion and Recommendation 5.1 Conclussion 5.2 Limitation and future research 34

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