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Abstract
This paper uses a broad multi-country dataset to describe the main stylized facts about export performance in the last four decades. First, transition probability matrices are computed to look at changes in the position of countries at the world distribution of the export to GDP ratio. It finds that transitions toward high export ratios have been mainly experienced by Asian countries, but also that some reformers, like Mexico and Chile, have been able to improve their position relative to other studied economies. African countries mainly sunk to the bottom part of the world distribution, although they constitute only half of the economies with relatively bad export performance. In the consideration of the structural factors that may play an important role for long-run transitions, the results suggest that more open economies and those with better institutions are more likely to move to high export ratios in the long-run. Second, the within-country experiences are analyzed for identifying episodes of export transitions. Using an event study methodology, a very weak association is found between export transitions and investment rate. In contrast, the results suggest that transitions are potentially driven by improvements in financial development. Finally, favorable terms of trade, increments in productivity, and reductions in exchange rate distortions are not found to be a catalyst for export transitions.
Acknowledgements
The author thanks Matías Braun, Rodrigo Fuentes, Juan Manuel Jauregui, Ken Sokoloff, Mariano Tappata, Guillermo Tolosa, two anonymous referees and especially Sebastian Edwards for valuable comments and suggestions. He also thanks Barry Bosworth and Susan Collins for providing him with the data for total factor productivity, and Roman Wacziarg for useful discussions on measures of trade liberalization.
Notes
1. These arguments are, however, not new in this literature. Several decades ago, Sachs (1985) argued that a key difference in vulnerability to a crisis between Asian and Latin American countries was the availability of export revenue to service debt.
2. In terms of ranking, the differences are very significant. South Korea increased 59 places (going from the 94th to the 34th position), and Zambia descended 47 places (ninth to 56th). This is ranking is computed for the common sample of 94 countries with information for both 1960–64 and 1995–2001.
3. See Rodrik (1997) for a comparative analysis of South Korea, Taiwan, Chile and Turkey. All of these countries have experienced large increases in exports.
4. Exports of goods and services represent the value of all goods and other market services provided to the rest of the world. They include the value of merchandise, freight, insurance, transport, travel, royalties, license fees, and other services, such as communication, construction, financial, information, business, personal, and government services. They exclude labor and property income (formerly called factor services) as well as transfer payments. An alternative is to use the export ratio measured in constant dollars, but this lowers the initial sample from 94 to 72 countries. In any case, the evidence tends to be similar when using both measures.
5. This was the most recent version of the dataset when this work was initiated.
6. A similar methodology has been applied by Proudman and Redding (2000) and Redding (2002) for analyzing trade specialization dynamics and by Mancusi (2001) for studying technological specialization in industrial countries.
7. The choice of these thresholds is, of course, arbitrary. Using several alternatives – for example, varying the number of states and thresholds – the main results on mobility patterns are similar. There are differences in the number of countries making a transition, but the main message from this exercise remains the same.
8. According to Wacziarg and Welch (2003), both Argentina and Brazil liberalized their trade regimes in 1991. See Edwards (1995) for an early review on reforms in Latin America.
9. This issue is particularly interesting in the context of the debate concerning the benefits of globalization. Critics of this phenomenon claim that poor countries have not participated in the growth of world economy. For a discussion questioning the validity of these claims, see Ravallion (2004).
10. This phenomenon was first noted by Leamer and Levinsohn (1995). Interestingly, a recent paper by Blum and Godlfarb (2006) shows that this gravity effect also holds in the case of digital goods consumed over the internet that have no trading costs. For a meta analysis on the effect of distance on trade, see Disdier and Head (2005).
11. The robustness of these results is checked using other measures of distance. First, the elasticity of 0.6 is changed to unitary elasticity. Second, a simple measure of physical distance is used. This is defined as the minimum air distance (in kilometers) to one of three main ports around the world: New York, Rotterdam, and Tokyo (Gallup et al. 1999). The evidence shown in this section holds when these alternative measures are used.
12. In other words, countries with low market access or a large distance to markets are those with DGDPi larger than the world median of this variable.
13. Although the negative relationship between growth and natural resources found by these authors has been criticized from different points of view, this is still used as benchmark for evaluating the robustness of countries' results to changes in the econometric specification (Mehlum et al., 2006).
14. In this indicator, a country is classified as ‘open’ if (i) average tariff does not exceed 40%; (ii) non-tariff barriers cover less than 40% of its imports; (iii) it does not have a socialist economic system; (iv) the black market premium on the exchange rate does not exceed 20%; and (v) exports are not controlled by a state monopoly.
15. As is the case with all the other variables considered, these TPM's and their ergodic distribution suggest some correlation with the long-run distribution of the export ratio, but they do not necessarily imply a causal relationship. Moreover, only a multivariate analysis may help to identify which correlations are robust once the impact of other variables is controlled for.
16. These are countries with no information on exports for the years 1960 through 1964. One notable example is China.
17. A similar methodology has been applied for studying he behavior of macroeconomic variables around episodes of external crises, such as current account reversals (Edwards 2005b; Freund and Warnock 2005), but to the best of our knowledge similar procedures has been not used in the context of significant increment in trade flows. Rodrik (1999) is an exception, but he only studies the evolution of growth and investment.
18. In order to focus on transitions where the saving ratio has increased significantly in absolute terms, Rodrik (2000) excludes transitions in which the saving rate after the transition remained less than 10%. In this case, however, there is not an evident reason to follow a similar procedure.
19. Different specifications have been used and the results are mostly unchanged.
20. Hereinafter, both definitions of transitions are denoted by Tran5 and Tran10, respectively.
21. The only exception is trade openness because it is a dummy variable. In this case, a Probit model is estimated and the discrete effect of moving from open to closed economy is presented.
22. This variable is taken from the Global Development Network Growth Database, and it is computed using the procedure described in Dollar (1992).
23. Total factor productivity used in this paper has been computed by Bosworth and Collins (2003) using a growth accounting procedure.
24. Domestic credit provided by banking sector (percentage of GDP) is used as a proxy of financial development. The evidence is similar when using another proxy for financial development, such as domestic credit provided by the banking sector (percentage of GDP).
25. It has to be noted that causality issues are more complicated. There is evidence that also trade expansion may induce financial development.