1) Increased import competition from trade partners inside and outside the EU was analyzed to determine its impact on regional economies and income per capita. 2) The results showed that higher import values were generally associated with increased regional income per capita, except for imports from Germany. Higher import sophistication (measured by average unit value) had mixed effects, with some trade partners associated with increased income and others associated with decreased income. 3) Imports from Japan, Korea, and Turkey were associated with increased regional income per capita when import sophistication rose, possibly due to intra-firm trade and technology transfers, while imports from Brazil and the US saw decreased income with rising sophistication, potentially from import substitution effects.

1. Import Impact of Economic Growth on
Regional Economies
Presentation of
Martins Priede
Xi’an-Jiaotong - Liverpool University
January, 2012
1
International Conference on Economics, Marketing and Management
(ICEMM 2012) Hong Kong, 5-7 February, 2012

2. Introduction I
 Assumption
◦ Increased import competition and global integration of economies
causes structural changes in people’s income
◦ Europe has advanced manufacturing industries, but increased level
of sophistication of its main trade partners might cause decline of
European income: as consumers switch to imported products thus
causing local manufacturing to contract and thus decrease income
per capita
 Increased import competition is measured by two means:
◦ Increase of import value (due to increased international trade
volumes – less barriers to international trade, lower transportation
and communication costs)
◦ increase of import sophistication level (due to increase of import
partners technological production capabilities, R&D inputs, quality
improvements etc.)
2

3. Introduction II
 Increase of import value can cause changes in regional income
◦ in less competitive regions – income per capita will decrease
significantly due to imports (imported goods will replace those locally
manufactured - reducing demand for locally made manufacture)
◦ in more competitive regions - employment in manufacturing will not be
affected by imports (increase of imported goods sophistication doesn’t
cause demand reduction of local manufacture). Products imported
cause competition in sophisticated market segment
 Research includes import competition both from inside and outside EU.
Included trade partners
◦ EU external trade partners: Brazil, China, Japan, Korea and Turkey
◦ EU internal trade partners: Germany, United Kingdom, The
Netherlands and France
3

4. Introduction III
 Motivation
◦ Analyze competitiveness of regional economies facing internal
and global competition
◦ To observe, if income pc of inhabitants at regional level due to
competition from internal, external competitors
◦ To look into firm size and industry regional concentration in regard to
increased international trade
◦ Previous studies about influence of increased import sophistication
concentrated on single countries or separated regions
 Main goal
◦ Analyze European regional economies response to increased
product sophistication of main import patterns
4

5. Objectives
 Estimate changes in regional economies due to increased
economic integration within Europe and outside world in recent
decade
 Understand how regional economies respond to increased trade
volume and import sophistication
◦ Analyze if regional income pc changes significantly
◦ Analyze trade with main partners and impact of bilateral trade
◦ Countries with highest import trade volume inside EU and outside EU
◦ Countries with different level of trade sophistication
 Analyze regional economies by using lowest level data series
possible with less proxy variables
5

6. Existing literature measuring sophistication
 How to measure export/import trade sophistication/product quality
◦ Unit value - sales divided by quantity measurement
◦ Unit value as measurement of product quality reviewed since 90’ies
◦ Theoretical basis (Stiglitz, 1987; Borin, 2008), empirical (Aiginger, 1997;
Dulleck, 2005; Nielsen, 2000)
◦ Concept of unit value can be also understand as price Easy to calculate
about all countries, consistent
◦ Alternatives: sophistication indexes based on exporting countries GDP
(Lall, 2005; Xu, 2007) higher GDP countries export more sophisticated
goods with their high wages and those are sophisticated goods which
was more share in higher GDP countries trade
◦ In case of other countries Japan - falling import prices on employment
in home economy (Tomiura, 2003; Sasaki, 2007)
 US - papers discussing import impact on wages and employment at
industry level (Hakura, 1997), competition with low wage countries
(5%< US GDP) (Bernard, 2002) 6

7. Existing literature and contribution
 Papers discussing EU intra and EU extra trade
◦ EU extra-trade is increasing over EU intra-trade,
  more entrants to market
  increased world integration (Anderton, 2005)
◦ EU intra- and extra-imports can be substituted in short-term
 European Monetary Union contribution to intra EU trade growth
(Dieppe, 2007; Chen, 2004)
 Intra EU growth found to be as result of reduced exchange rate
volatility (Dieppe; 2007)
 Contribution
◦ Previously not researched EU-wide import assessment on regional
manufacturing employment
◦ Analyze trends of import competition in whole EU at regional level over
10 years period, uninterrupted, yearly basis
7

8. AUV (Average Unit Value)
 AUV = total volume of imports in product group / total quantity of
imported products
 Arguments for AUV usage
◦ Most of analyzed countries observed have high GDP and high unit
values in trade with EU - high unit values suggest more costly R&D
◦ Most of high value products are patent protected, so not really
substitutes (legally)
◦ Wholesalers are “market makers” – they decide price and quantities
of product offered on market (this weakens price elasticities)
◦ Easy to measure, changes reflected over time
◦ Available at trade statistics lowest level
◦ Motivation to create trade is mostly for items not available in own
country. For example, intra-EU AUV is lower than extra-EU trade
AUV)
8

9. Data highlights Description of data
◦ Source Eurostat
◦ Region specific data observed from
1995 to 2005, inclusive
◦ In country case studies, import to
itself ignored - missing value
◦ All import data is common euro
currency, in real terms
◦ Random effect panel analysis
considered over fixed effects
following to Hausman test
◦ Results are HAC consistent
 Limitations
◦ Intra-EU and extra-EU export is not
included
◦ Price elasticities are not estimated
9

10. Trends of import value and AUV
 Trends of import value
◦ Increasing trend observed for both EU extra and intra trade and all
analyzed trade partners
◦ Average EU trade value has been increasing, on yearly basis 10.4%
for EU extra and 6.8% for EU intra trade
 Trends of import average unit value - AUV
◦ Suggesting increase in average unit value, average increase per year
- 5.3% for extra-EU and16.3% for intra-EU trade
10

11. Trends of import value
 Biggest import partners, imports from US dominates
11
0
50 000
100 000
150 000
200 000
250 000
300 000
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
millionEUR
USA
China
Japan
Canada
Switzerland
Turkey
Russia

12. Trends of AUV
 Yearly changes of AUV
◦ Intra EU is growing faster than extra EU, but steady growth not
observed
◦ Strong growth for US, China and Korea
◦ Japan lesser growth as AUV is already very high
12

13. Structure of transport mode
 Years 2000-2008
 Higher AUV choose air, whereas lower AUV choose sea transport
13

14. Methodology I
 Panel data, random effects model
 ∑
 Left side:
◦ GDP – local income pc at region r, in year t, import partner country p,
number of import countries observed k, industries are j
 Right side
◦ IIA – intra industry agglomeration, Tomiura (2003) (+)
 specialization leads to increase in competitiveness
◦ SCL – scale at firm level, Tomiura (2003) (+),
 bigger company size – assumed to be more competitive
14

15. Methodology II
◦ AUV – value of imports for c countries
 (-) when increased import value decreases local income pc
 (+) when import increases local income pc
 ϵ - error term captures all other effects on regional employment
◦ Region is assumed to import goods proportional to its regional GDP
share in overall country’s GDP
◦ ∑
15

16. Data structure
 Products
 Industries
 Regions
 Countries
16
country 2country 1
region 1 region 1 R1 R2 R3

17. Results I
 Specifications:
◦ 1 – 3 impact of trade volume
◦ 4 – 6 impact of trade sophistication
◦ 1 and 4 impact of import from major trade partners
◦ 2 and 5 impact of aggregate import from inside/outside Europe
◦ 3 and 6 impact from major inside trade partners
17

18. Results II, Import value and AUV
SCL (+) average
firm size
IIA (-) negative
influence of industry
concentration
EU intra negative
effect
EU extra positive
effect
18
Value Value Value AUV AUV AUV
(1) (2) (3) (4) (5) (6)
Intercept 7.5235
a
(0.0837)
7.2451
a
(0.0374)
9.5881
a
(0.0162)
9.5563
a
(0.0125)
9.8099
a
(0.0118)
9.5881
a
(0.0163)
Ln SCL index 0.0482
a
(0.0072)
0.1109
a
(0.0029)
0.0331
a
(0.0078)
0.0411
a
(0.0054)
0.1386
a
(0.0032)
0.0328
a
(0.0078)
IIA index -0.0796
a
(0.0061)
-0.1043
a
(0.0031)
-0.0454
a
(0.0064)
-0.0533
a
(0.0046)
-0.1063
a
(0.0033)
-0.0455
a
(0.0064)
EU intra -0.0098
a
(0.0033)
-0.0171
a
(0.0032)
EU extra 0.1482
a
(0.0029)
0.0128
c
(0.0068)
0.0142
a
(0.0025)
0.0129
c
(0.0068)
Ln Germany -0.0476
a
(0.0054)
0.0004
(0.0079)
0.0044
(0.0061)
0.0004
(0.0079)
Ln Netherlands 0.0674
a
(0.0061)
0.0306
a
0(.0052)
0.0443
a
(0.0053)
0.0306
a
(0.0051)
Ln UK 0.0707
a
(0.0072)
-0.0302
a
(0.0061)
-0.0441
a
(0.0057)
-0.0302
a
(0.0061)
Ln Brazil 0.0178
a
(0.0033)
-0.0105
a
(0.0037)
Ln China 0.0295
a
(0.0041)
0.0066
(0.0056)
Ln Japan 0.0024
(0.0048)
0.0386
a
(0.0045)
Ln Korea -0.0686
a
(0.0039)
0.00848
c
(0.0051)
Ln Turkey 0.0161
a
(0.0031)
0.0253
a
(0.0037)
Ln US 0.0438
a
(0.0051)
-0.0503
a
(0.0055)
R squared 0.1881 0.2333 0.0097 0.0222 0.0646 0.0097
Log likelihood -13546.76 -18802.12 -17370.31 -16498.53 -21721.81 -17370.31

19. Results III, AUV and conclusion
For import value:
 Negative for Germany, but positive for Netherlands and UK
 Positive and significant for other outside economies: Brazil, China, Japan, Turkey
and US. Only negative with Korea
For import sophistication:
 For internal trade partners inconclusive: Germany – insignificant, positive for
Netherlands, and negative for UK
 For external trade partners: negative for Brazil and US, positive for Japan, Korea and
Turkey, insignificant for China
 Possible reasons for AUV positive influences observed for imports from Japan,
Korea and Korea: intra firm imports, imports of licensed technology, imports of inputs
 Possible reasons for AUV negative influences: import is substituting local production
  In contrary to popular belief, results show positive effect of trade sophistication on
regional GDP per capita, which did not suggest import substitution, but can be as a
result of complementary or intra-firm trade
19