5.7 Export competitiveness See Table 5.7 here

Commentary
About the data
Definitions
Data sources

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Thirty years ago the research staff of the General Agreement on Tariffs and Trade (GATT), the predecessor to the World Trade Organization, examined broad patterns of export growth among developing countries. Their work addressed three issues: To what extent are differences in the patterns of merchandise export growth across countries explained by growth in the markets for their traditional exports? Had some countries succeeded in expanding their market share of their traditional exports? And how important was trade diversification in determining the export performance of countries? (See GATT 1966, pp. 23–32.)

The GATT analysis decomposed the growth of nominal exports over the period 1959–65 into three multiplicative factors. The first, f1, measured the growth due to expansion of the world market for the country's traditional exports. The second, f2, measured the growth due to expansion of its market share for its traditional exports. The third, f3, measured as a residual, captured the growth in exports due to diversification into nontraditional exports. By construction, nominal export growth is equal to the product of the three factors: f1 • f2 • f3.

The indicators in the table update the GATT results for 1983–84 through 1988–89 and 1988–89 through 1993–94. (Two-year averages were used as starting and ending points to reduce the influence of a single-year outlier.) The growth in total nominal exports and the three growth factors are shown as compound annual growth rates over the two periods.

In 1966 the GATT concluded that during the period 1959–61 to 1964–65 "above average total export performances were, in the majority of cases, associated with gains in market shares" (p. 30). Irving Kravis, in his well-known article "Trade as a Handmaiden to Growth," reviewed the same data and concluded that "the successful performers among [developing countries] were differentiated from the less successful primarily by increases in their shares in world markets for their traditional exports rather than by good fortune in world demand for their particular exports" (1970, p. 868). The data in the table encompass a wide range of export performance—from Iraq's loss of 47 percent a year during the second period to Yemen's increase of 85 percent a year during the first. Some of these extreme changes were caused by unusual events, such as wars, or by the fact that the economy started from a very low level.

Among large exporters and particularly among high-income countries, the data reveal a pattern of declining market shares for traditional exports and relatively small growth through export diversification. However, these data do not reflect complementary data on the expansion of service exports, which have become a leading factor in the growth of world trade. Thus high-income economies may be losing shares in their traditional markets for manufactured goods by diversifying their export regimes into services. A similar pattern can be seen among the rapidly growing economies of Asia—Hong Kong, the Republic of Korea, and Singapore. In contrast, the less mature economies of Indonesia, Malaysia, and Thailand still show evidence of rapid diversification of their trade in goods.

Table 5.7a summarizes the average growth of total exports and each of the three growth factors for two groups of countries: those that suffered a loss in nominal exports in both periods and those that increased their exports in both periods. The data suggest that most economies that gain in exports do so by expanding their traditional markets (world demand), while those who lose do so by losing their share of traditional markets. This holds true in both periods, but in the second period even gainers show losses in market share, while losers make a greater effort to diversify their exports.

The correlation between export growth and growth in each of the three factors is shown in table 5.7b. The correlation coefficients suggest a different story than the simple averages.

In the first period the diversification factor has the strongest correlation with export growth. Thus countries that diversified tended to be the most successful in expanding total exports. Growth in world demand for traditional exports is also positively correlated with export growth, but there is virtually no correlation for countries with a loss in exports. The negative sign on the diversification factor suggests that the greater the loss in trade, the more economies tried to diversify. In the second period, growth in market share is strongly associated with total export growth, but diversification is relatively unimportant.

Care must be used in drawing conclusions about development strategies from these data. While successful exporters have diversified their commodity mix, diversification does not guarantee growth. For many economies the largest factor in export growth has been the general expansion of world trade, which has allowed their export markets to grow. World trade patterns continue to change. In seeking new opportunities, some economies will enter new markets while other will seek to increase their share of existing markets. And for some the new frontier lies in services, giving up their hold on traditional markets to the newly industrializing economies.

Source: World Bank staff estimates.

Source: World Bank staff estimates.

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Data on commodity exports were taken from the United Nations COMTRADE database, using partner country reports of imports at the three-digit Standard International Trade Classification (SITC) level. The use of partner trade minimizes the effects of nonreporting among developing countries. Because most large importers report trade on a timely basis, the trade included is estimated to cover 95 percent of world trade in a given year. Two-year averages are computed to reduce the effect of a single unusual year. No trade data were reported for China in 1983, so 1984 data are used for the base year. The results for Germany for 1983–84 to 1988–89 refer only to the former Federal Republic of Germany.

Traditional exports for a country are defined as the three-digit commodity groups that made up at least 75 percent of the value of the country's exports in 1983–84 and included at least the 10 largest commodity groups. The same export bundle is used to calculate the indexes in 1988–89 to 1993–94.

Trade growth due to world demand for traditional exports is computed as

f1 = Xmt/Xm0

where Xmt is the value of total world trade in the country's traditional exports at the end of the period and Xm0 is the corresponding value at the beginning of the period.

The growth due to an increase (or decrease) in market share is computed as

f2 = (xmt/xmO)/( Xmt/Xm0)

where xmt and xmO are the country's exports of traditional goods at the end and the beginning of the period. Thus factor f2 is the ratio of the country's share of world trade in traditional exports at the end of the period to its share at the beginning of the period.

The third factor, trade diversification, is determined as the residual export growth over the period. It can be shown that

f3 = (xm0/x0)/(xmt/xt)

where xt and x0 represent the country's total traditional and nontraditional exports. Thus the trade diversification factor represents the reciprocal of the change in shares of traditional exports from the beginning to the end of the period. In other words, it shows the room made available in the county's export bundle for nontraditional exports.

While GATT (1966) stated the factors in index form relative to their base year level, the table shows them as compound annual growth rates.

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• Total export growth is the compound annual rate of growth in the value of merchandise exports.

• Export growth from world demand measures the compound annual growth in exports due to growth of the world market for the country's traditional exports. Traditional exports are defined as the 10 largest three-digit commodity groups, or the groups that made up at least 75 percent of the country's trade in the base year, whichever is greater.

• Export growth from market share measures the compound annual growth in exports due to growth in the country's share of the world market in its traditional exports.

• Export growth from export diversification measures the compound annual growth in exports due to growth of nontraditional exports.

Raw data come from the United Nations COMTRADE database. Computations were carried out by staff of the World Bank's International Economics Department, Development Data Group.

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