Are Mena’s exporters fighting with their hands tied? New firm-level evidence

Click here to load reader

Embed Size (px)

description

Presentation by Melise Jaud (World Bank) at the ERF 20th Annual Conference - Cairo, 21 March 2014

Transcript of Are Mena’s exporters fighting with their hands tied? New firm-level evidence

Exporters in MENA

Are Menas exporters fighting with their hands tied? New firm-level evidence

MENA Chief Economist - ERF Flagship ERF Annual ConferenceCairo, March 21, 2013

Motivation

What we knowPolitical events reshaping MENA region emphasize the importance of a more inclusive development path for political stability and accelerated growth. Promoting trade is pivotal to enable sustained economic growth.Numerous studies at aggregate trade level highlight MENAs weak performance in trade and diversification butCountries do not export, firms do

What we do not knowNo systematic information on firm-level exporter behavior largely because of a lack of dataAccount for heterogeneity: Aggregate data hide a lot of heterogeneity across firms, and within firms across products/markets

Our idea was to collect and release the firm-level data itself but that was not possible due to confidentiality constraints by the data providers.Solution => to create a database that provides rich information about exporter dynamics while preserving confidentiality of individual firm-level information.

Much like the OECD-Eurostat TEC database the objective is to understand better trade flows capturing the micro level dimension of tradeWe also disaggregate trade flows according to the characteristics of trading firms BUT BIG DIFFERENCE is that in EDD we consider only export-related characteristics We are currently working to expand to link to import data and to production data but not on such a major scale

2

This Study

3 ObjectivesAssemble new data : Exploit Novel multi-country exporter-level dataset universe of exporters in several MENA countries - Egypt, Iran, Jordan, Kuwait, Lebanon, Morocco, and Yemen - and many comparator countriesAssemble a number of original stylized facts on exporters in MENA Better understand the micro-foundation of low export growth and diversification in the region.3 QuestionsHow do MENA exporters compare to the rest of the word in terms of characteristics, growth and diversification patterns?What drives and what constrains MENA exporters growth and diversification?How can policies and institutions be devised to better promote MENA exporters performance and dynamics?

Our idea was to collect and release the firm-level data itself but that was not possible due to confidentiality constraints by the data providers.Solution => to create a database that provides rich information about exporter dynamics while preserving confidentiality of individual firm-level information.

Much like the OECD-Eurostat TEC database the objective is to understand better trade flows capturing the micro level dimension of tradeWe also disaggregate trade flows according to the characteristics of trading firms BUT BIG DIFFERENCE is that in EDD we consider only export-related characteristics We are currently working to expand to link to import data and to production data but not on such a major scale

3

Todays Event

MENAs exporters fabric is weakWho are Exporters in MENA MENA missing superstars?

An improved trade-policy environment Improved access to imported intermediates impacts firm-level performanceBut non-tariff measures have complex effectsDovis Jaud (harmonization)El Enbaby Hendy (SPS Egypt)But a business environment that remains distortionary Weak financial markets and governance penalize key sectorsCorruption and red tape are prevalentHendy Zaki: Red tape EgyptRijkers Freund Nucifora: State captureThe impact of political instability Haidar (sanctions)Von der Weide et al (West Bank)

MENAs exporters fabric is weak(Fernandes, 2014; Brunel, Fernandes, Jaud, 2014)

#1 : MENA countries have fewer exporters with smaller average size but higher median size and lower concentration of market shares

#2: Exporters in MENA are generally less diversified in terms of products and destination markets

#3: Firm entry and exit into export markets and survival of new exporters are not different in MENA on average but there is important heterogeneity across countries

#4: Growth in exports in short-term and over longer-term is driven by expansion of continuing firms, continued destinations, and continued products

Exporter-Level Data - Indicators

Exporter Dynamics Database (Cebeci, Fernandes, Freund, and Pierola , 2012) which uses multi-country exporter-level data collected from customs agencies (1991-2011)Dataset is at exporting country-firm-HS4-digit product-destination-year level covering universe of export transactions in agriculture, manufacturing and mining (excluding HS 27 - oil) Originally data at HS6-digit but HS4-digit used to cover Egypt

Benchmarking MENA exporters vs ROW: Basic characteristics: N of exporters, exporter size (export value)Concentration/diversification: share of top x% exporters, N of products or destinations per exporterFirm dynamics: exporter entry, exit and one-year survival rates

37 developing countries8 developed countries

Our idea was to collect and release the firm-level data itself but that was not possible due to confidentiality constraints by the data providers.Solution => to create a database that provides rich information about exporter dynamics while preserving confidentiality of individual firm-level information.

Much like the OECD-Eurostat TEC database the objective is to understand better trade flows capturing the micro level dimension of tradeWe also disaggregate trade flows according to the characteristics of trading firms BUT BIG DIFFERENCE is that in EDD we consider only export-related characteristics We are currently working to expand to link to import data and to production data but not on such a major scale

6

# 1

Base, Size and Concentration of MENA Exporters

Fact 1: MENA region has fewer exporters

MENA region as whole has fewer exporters than predicted for comparable income per capita and size levels - Lebanon and Morocco are exceptions in MENATrends. Mostly stagnating-declining

Averages for 2006-2008 period

Based on Fernandes (2014)

Export base: Tremendous dispersion in number of exporters within MENA - Yemen having less than 600 and Egypt more than 8000More rigorous evidence on patterns regarding the export base is provided by cross-country regressions

8

Fact 1: MENA exporters have smaller average size but higher median size

Different pattern for average vs median exporter size in MENA and some exceptions on average size

Averages for 2006-2008 period

Within MENA Morocco has the largest exporters followed by Jordan & Egypt but Lebanon, Yemen, Kuwait, and Iran rank at bottomIn MENA median export turnover per firm dramatically smaller than average export turnover per firm indicating positively skewed distribution of exporter size but that is not a specificity of the MENA But other diagnostics on skewness of distribution of exporter size reveal that export sectors in MENA countries are only moderately concentrated

9

Fact 1: Concentration of exporter market shares in MENA is relatively low

Despite being high in absolute terms in most MENA countries exporter size distribution is not particularly concentratedShare of top 5% exporters is significantly lower in MENA region controlling for GDPpc, GDP, time effects

Averages for 2006-2008 period

Shares accounted for by top 5% exporters are large in absolute magnitude in most MENA countries >70%

10

# 2

Diversification of MENA ExportersDynamics of MENA Exporters

Fact 2: MENA exporters are less diversified

Substantial heterogeneity across exporters in each countryLebanon is only exception in MENA with more diversified exporters

Averages for 2006-2008 period

Firm export diversification reduces dependence on a limited number of products & markets thus to price fluctuations and adverse economic shocks and that reduction in instability may contribute to higher growth.Average numbers of products per exporter mask substantial heterogeneity across exporters in each country: Iran, Lebanon, and Yemen have large standard deviations of the number of products per exporter / Dispersion of number of destinations per exporter is smallLimited geographic diversification of MENA exporters is not surprising though, given their geographic location and their close historical ties with European Union countries.

12

Extra on diversification of MENA exporters

MENA firms mostly export 1 product to 1 destination as do firms in other developing countries

but more diversified firms account for a smaller share of total exports in MENA than elsewhere

Based on Brunel, Fernandes, and Jaud (2014)

Averages for 2006-2008 period

Small number of multi-product multi-destination firms account for the bulk of trade (BJRS 2007, EKK 2008, Mayer & Ottaviano 2008)

13

Extra on how MENA exporters diversify markets

New exporters begin exporting gradually in MENA and elsewhere Few exporters to 1 market expand to more markets and many exitVolatility in markets served by exporters is especially strong in MENA

Based on Brunel, Fernandes, and Jaud (2014)

Averages for 2006-2008 period

Understand patterns of diversification of MENA firms based on transition probabilities for destination markets year to year within 2006-2008 probabilities are calculated as averages of actual movements for the three years of dataFirms that have a market scope of 0 = new exporters / Entry rate into exporting for MENA is 52 percent = sum of all positive changesExit rates for all destination scope categories are very high even for large firmsMultimarket MENA firms frequently move in and out of destinations much more than what happens in developed countries and than in other developing countries60% of MENA firms exit at least 1 market next year, compared to 50% for all countries Total exit = sum of all negative changes Firms that export to a small number of markets tend to change number by adding or subtracting only 1 marketAs market coverage increases, firms are more likely to expand or contract the number of destinations by multiple markets at a timeFacts consistent with trade models where productivity thresholds determine export participation - new exporters closer to productivity threshold, usually small firms, might be easily pushed out by increased competition which explains high rates of exit for firms which only export to few markets

14

# 3

Dynamics of MENA Exporters

Fact 3: Exporter turnover rates are not different in MENA on average but are higher in oil-exporting countries

Averages for 2006-2008 period

Countries with larger manufacturing bases - Egypt, Jordan, and Morocco - exhibit lower rates of turnoverIn oil-exporting countries there is an apparently dynamic entrepreneurial environment with high levels of experimentation (entry) accompanied by similar levels of failure (exit) in export markets but since it is in more marginal sectors maybe they are not commercially viable activities

16

Fact 3: New exporters survival rates are not different in MENA on average but there is heterogeneity

Averages for 2006-2008 period

Relatively lower survival rates of new exporters in Iran, Lebanon, Morocco, and Yemen.A low degree of export survival in a country is problematic because failures have a cost. Suggest that beyond experimentation the difficult business environment increases the proportion of accidental failures. (Brenton, Cadot, and Pierola, 2012)

Egypt and Jordan exhibit significantly higher survival rates but opposite is true for other MENA countriesEvidence in line with industry dynamics literature: new firms start small and suffer a high probability of exit in their initial years (Caves, 1998) and is consistent with evidence from the growing export dynamics literature (e.g., Eaton, Kortum, and Kramarz, 2007; Lederman, Rodriguez-Clare, and Xu, 2011)Longer-lasting export relationships in Egypt and Jordan may be due to learning spillovers from presence of networks of established exporters?

17

Profile of MENA Exporters across Sectors

Indicators of exporter competitiveness by country-sector-year.

Examine the differences in size, concentration, diversification, and dynamics of exporters across broad types of sectors: primary products and commodities, natural resource-based manufacturing, low-tech manufacturing, and medium/high-tech manufacturing.

Most of the stylized facts are still verified within sectors (i.e. after controlling for sector fixed effects)

Basically the under-performance is not due to MENA specializing in particular types of sectors.

# 4

Sources of Export Growth in MENA Countries: Intensive vs. Extensive Margins

Fact 4: Short-term export growth is driven by continuing exporters, destinations, and products

2011-2012 export growth decomposition

Clear dominance of intensive margin Similar to evidence for other countries

Export growth decompositions to quantify contribution:of continuing, new and exiting exporters to total exports of countryof continued, new and exiting destinations to exports of continuing exportersof continued, new and exiting products to exports of continuing exporters to continued destinations

20

Fact 4: Short-term export growth is driven by continuing firms, destinations, and products

But gross turnover is very high in some countries and periods

2011-2012 export growth decomposition

21

Fact 4: Longer-term export growth is driven by continuing firms, destinations, and products

2008-2012 export growth decomposition

Dominance of intensive margin is NOT similar to evidence for other countries Turnover across firms in export markets in MENA does not generate tangible export growth

22

Fact 4: Longer-term export growth is driven by continuing firms, destinations, and products

High degree of turnover across exporters, destinations and products in MENA does not always generate tangible export growth

2008-2012 export growth decomposition

23

Lessons on Exporters in MENA

Reconciling the macro and micro: Low growth and diversification at macro result from (i) MENA exporters are smaller, less diversified, not particularly dynamic in MENA countries with a stronger manufacturing base (ii) MENA countries seem to lack large exporters and (to some extent) young exporters which drive export growth and diversification (Freund and Pierola, 2014)(iii) Conservative export growth strategies little experimentation

Suggest several market and government failures: affect firms performance ad composition of the export sector. Weak financial markets and limited access to financeWeak governance penalize key sectors (Judy and Wood, 2014)Red tape and corruption are prevalent (Hendy and Zaki, 2014; Rijkers, Freund and Nucifora, 2014)

Some testable hypotheses : domestic regulations, exchange rate and competitiveness issues, or non-tariff trade barriers deter MENAs firms.

MENA countries tend to have less friendly business environments (e.g., with cumbersome regulations and higher transactions costs) which limit the performance of all firms along the distribution and affect the composition of the export sectorabsence of very large exporters is likely to be detrimental to export growth and diversification in the MENA countries as those tend to contribute the most to export growth and diversification

24

Thank you

Menas under-trading - Macro evidenceFreund and Behar, 2011

Cross-section gravity : MENAs exports to the outside world is only 1/3 of potential in recent years, after controlling for the standard determinants of trade.

Evidence of convergence over the past 15 years: MENAs exports have been expanding more rapidly than exports from the rest of the world. Still, at historical growth rates, it would take 20 years for MENA countries to reach potential trade.

Non oil export : Exports are also only one third of the benchmark, but the improved export performance over time is much slower

Interestingly, while MENA also under-trades within the region, the extent of under-trading is less acute than with the outside world. No indication of more rapid regional integration over time. Recent trade agreements among MENA countries have not stimulated regional trade to a greater extent than external trade.