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Page 1: Are Mena’s exporters fighting with their hands tied? New firm-level evidence

Are MENA’s exporters fighting with their hands tied?

New firm-level evidence

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

Page 2: Are Mena’s exporters fighting with their hands tied? New firm-level evidence

Motivation

What we know

• Political 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 MENA’s weak performance in trade and diversification but

• Countries do not export, firms do

What we do not know

• No systematic information on firm-level exporter behavior largely because of a lack of data

• Account for heterogeneity: Aggregate data hide a lot of heterogeneity across firms, and within firms across products/markets

Page 3: Are Mena’s exporters fighting with their hands tied? New firm-level evidence

This Study 3 Objectives

i. Assemble 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 countries

ii. Assemble a number of original stylized facts on exporters in MENA

iii. Better understand the micro-foundation of low export growth and diversification in the region.

3 Questions

i. How do MENA exporters compare to the rest of the word in terms of characteristics, growth and diversification patterns?

ii. What drives and what constrains MENA exporters’ growth and diversification?

iii. How can policies and institutions be devised to better promote MENA exporters’ performance and dynamics?

Page 4: Are Mena’s exporters fighting with their hands tied? New firm-level evidence

Today’s Event

1. MENA’s “exporters fabric” is weak– Who are Exporters in MENA – MENA missing superstars?

2. An improved trade-policy environment – Improved access to imported intermediates impacts firm-level performance– But non-tariff measures have complex effects

• Dovis Jaud (harmonization)• El Enbaby Hendy (SPS Egypt)

3. But a business environment that remains distortionary – Weak financial markets and governance penalize key sectors– Corruption and red tape are prevalent

• Hendy Zaki: Red tape Egypt• Rijkers Freund Nucifora: State capture

4. The impact of political instability • Haidar (sanctions)• Von der Weide et al (West Bank)

Page 5: Are Mena’s exporters fighting with their hands tied? New firm-level evidence

MENA’s “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

Page 6: Are Mena’s exporters fighting with their hands tied? New firm-level evidence

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 exporter– Firm dynamics: exporter entry, exit and one-year survival rates

37 developing countries8 developed countries

EgyptIranJordanKuwaitLebanonMoroccoTunisiaYemen

Page 7: Are Mena’s exporters fighting with their hands tied? New firm-level evidence

# 1

Base, Size and Concentration of MENA Exporters

Page 8: Are Mena’s exporters fighting with their hands tied? New firm-level evidence

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 MENA

• Trends. Mostly stagnating-decliningLog Number of Exporters

Log Number of Exporters

MENA Dummy -0.461***(0.124)

Egypt Dummy -0.379***(0.087)

Iran Dummy -0.661***(0.102)

Jordan Dummy 0.059(0.052)

Kuwait Dummy -1.480***(0.111)

Lebanon Dummy 0.189**(0.084)

Morocco Dummy 0.127**(0.062)

Yemen Dummy -1.317***(0.065)

Log GDP pc Yes Yes Log GDP Yes Yes Year Fixed Effects Yes Yes Observations 183 183R-squared 0.877 0.907

505

1,869

3,315

4,977

5,445

6,506

7,314

8,370

13,770

13,804

15,023

44,570

0 10,000 20,000 30,000 40,000 50,000Number of Exporters

Yemen

Jordan

Kuwait

Lebanon

Morocco

Bangladesh

Chile

Egypt

Iran

Bulgaria

Pakistan

Turkey

Averages for 2006-2008 period

Based on Fernandes (2014).8

11.

21.

4

2008 2009 2010 2011 2012

Egypt IranJordan LebanonMorocco Yemen

Number of Exporters - Relative to 2008

Page 9: Are Mena’s exporters fighting with their hands tied? New firm-level evidence

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

0.7

0.8

0.9

0.9

0.9

1.1

1.7

1.8

2.0

2.2

2.8

8.3

0 2 4 6 8Average Exporter Size in Millions of USD

Lebanon

Yemen

Kuwait

Bulgaria

Iran

Pakistan

Egypt

Jordan

Bangladesh

Turkey

Morocco

Chile

0.022

0.027

0.040

0.048

0.049

0.057

0.062

0.065

0.088

0.089

0.105

0.277

0 .1 .2 .3Median Exporter Size in Millions of USD

Bulgaria

Kuwait

Lebanon

Yemen

Chile

Jordan

Pakistan

Egypt

Iran

Morocco

Turkey

Bangladesh

Log Average Exporter Size

Log Average Exporter Size

Log Median Exporter Size

Log Median Exporter Size

MENA Dummy -0.481*** 0.408***(0.118) (0.099)

Egypt Dummy -0.476*** 0.177(0.103) (0.178)

Iran Dummy -1.241*** 0.374***(0.151) (0.140)

Jordan Dummy 0.205*** 0.785***(0.077) (0.141)

Kuwait Dummy -1.007*** 0.082(0.137) (0.249)

Lebanon Dummy -0.949*** 0.394**(0.108) (0.161)

Morocco Dummy 0.233*** 0.701***(0.075) (0.106)

Yemen Dummy -0.782*** 0.158(0.066) (0.119)

Log GDP pc Yes Yes Yes Yes Log GDP Yes Yes Yes Yes Year Fixed Effects Yes Yes Yes Yes Observations 183 183 183 183R-squared 0.318 0.414 0.234 0.245

Averages for 2006-2008 period

Page 10: Are Mena’s exporters fighting with their hands tied? New firm-level evidence

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 concentrated

• Share of top 5% exporters is significantly lower in MENA region controlling for GDPpc, GDP, time effects

0.50

0.65

0.72

0.73

0.74

0.79

0.80

0.80

0.83

0.83

0.86

0.94

0 .2 .4 .6 .8 1Share of Top 5% Exporters

Bangladesh

Yemen

Iran

Pakistan

Morocco

Egypt

Turkey

Lebanon

Bulgaria

Jordan

Kuwait

Chile

Averages for 2006-2008 period

Page 11: Are Mena’s exporters fighting with their hands tied? New firm-level evidence

# 2

Diversification of MENA ExportersDynamics of MENA Exporters

Page 12: Are Mena’s exporters fighting with their hands tied? New firm-level evidence

Fact 2: MENA exporters are less diversified

2

3

3

4

4

4

4

5

5

5

6

0 2 4 6Average Number of HS 4-digit Products per Exporter

Jordan

Bangladesh

Chile

Yemen

Kuwait

Egypt

Pakistan

Bulgaria

Morocco

Iran

Lebanon

2

2

2

2

3

3

3

3

3

3

4

4

0 1 2 3 4Average Number of Destinations per Exporter

Kuwait

Iran

Yemen

Bulgaria

Morocco

Egypt

Lebanon

Jordan

Pakistan

Chile

Bangladesh

Turkey

• Substantial heterogeneity across exporters in each country• Lebanon is only exception in MENA with more diversified exporters

Averages for 2006-2008 period

Page 13: Are Mena’s exporters fighting with their hands tied? New firm-level evidence

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)

1 2 3 4-10 11+ TotalShare of exporting firms (%)

1 30.0 8.1 4.0 8.0 3.9 54.12 3.4 4.1 2.2 4.2 1.9 15.83 1.2 1.3 1.2 2.9 1.4 8.04-10 1.6 1.8 1.6 6.4 5.1 16.411+ 0.2 0.3 0.3 1.6 3.2 5.7Total 36.4 15.6 9.2 23.1 15.7 100.0

Share of total exports (%)1 1.2 0.6 0.4 1.7 6.5 10.42 0.4 0.3 0.3 1.1 2.8 4.93 0.3 0.2 0.2 0.8 2.4 3.94-10 1.0 1.0 1.1 4.3 9.5 16.911+ 0.8 1.7 1.1 8.4 51.8 63.8Total 3.8 3.9 3.1 16.3 73.0 100.0

All Developing CountriesNumber of Products

Num

ber o

f Des

tinati

ons

1 2 3 4-10 11+ TotalShare of exporting firms (%)

1 30.0 8.5 4.2 8.9 4.2 55.92 3.7 4.3 2.1 4.1 1.9 16.13 1.3 1.5 1.2 2.7 1.4 8.04-10 1.5 2.5 1.7 5.7 4.3 15.711+ 0.2 0.4 0.3 1.2 2.3 4.3Total 36.7 17.1 9.4 22.7 14.1 100.0

Share of total exports (%)1 1.8 1.3 1.0 3.5 4.0 11.62 1.0 0.8 0.7 2.6 2.7 7.83 0.5 0.6 0.5 1.9 1.7 5.24-10 1.9 2.4 2.3 9.0 11.0 26.711+ 1.5 3.3 1.0 11.4 31.4 48.7Total 6.8 8.4 5.5 28.4 50.9 100.0

MENA Countries

Num

ber o

f Des

tinati

ons

Number of Products

Averages for 2006-2008 period

Page 14: Are Mena’s exporters fighting with their hands tied? New firm-level evidence

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 exit• Volatility in markets served by exporters is especially strong in MENA

0 1 2 3 4 5 6-10 11-25 25++4 markets or more 3.1% 1.0% 2.6% 3.3% 3.8% 5.3% 8.1% 9.6% 19.0%+3 markets 2.4% 0.9% 1.7% 2.0% 2.9% 3.4% 3.3% 4.5% 4.4%+2 markets 6.6% 2.2% 4.1% 4.6% 4.9% 4.3% 5.1% 5.1% 4.8%+1 market 40.0% 7.2% 9.6% 10.1% 10.4% 9.1% 8.5% 7.0% 3.2%No change 48.0% 39.4% 23.2% 18.0% 13.9% 13.7% 10.1% 7.2% 4.8%-1 market 0.0% 49.4% 29.2% 21.6% 16.3% 13.5% 12.0% 8.9% 7.3%-2 markets 0.0% 0.0% 29.5% 19.5% 16.3% 13.6% 10.9% 6.9% 4.4%-3 markets 0.0% 0.0% 0.0% 20.8% 14.9% 12.5% 8.8% 7.4% 6.5%-4 markets or more 0.0% 0.0% 0.0% 0.0% 16.5% 24.7% 33.3% 43.4% 45.6%Ch

ange

in D

estin

ation

s in

Year

t+1

Number of Destinations in Year tMENA countries

0 1 2 3 4 5 6-10 11-25 25++4 markets or more 2.3% 0.8% 2.3% 3.5% 4.6% 5.4% 7.6% 12.7% 18.6%+3 markets 2.0% 0.9% 2.1% 2.8% 3.9% 4.2% 4.8% 6.0% 6.6%+2 markets 6.7% 2.5% 4.9% 6.0% 6.6% 6.6% 7.4% 7.3% 5.8%+1 market 46.2% 8.7% 12.0% 12.5% 12.4% 12.1% 11.1% 9.6% 6.9%No change 42.7% 45.9% 27.0% 22.3% 19.3% 17.8% 14.5% 10.5% 7.5%-1 market 0.0% 41.2% 30.2% 23.1% 19.2% 17.4% 15.2% 10.9% 7.0%-2 markets 0.0% 0.0% 21.4% 17.4% 15.4% 14.2% 12.5% 9.5% 7.5%-3 markets 0.0% 0.0% 0.0% 12.3% 10.2% 9.4% 8.9% 7.7% 6.3%-4 markets or more 0.0% 0.0% 0.0% 0.0% 8.3% 12.8% 18.0% 25.8% 33.8%Ch

ange

in D

estin

ation

s in

Year

t+1

Number of Destinations in Year tAll developing countries

Based on Brunel, Fernandes, and Jaud (2014)

Averages for 2006-2008 period

Page 15: Are Mena’s exporters fighting with their hands tied? New firm-level evidence

# 3

Dynamics of MENA Exporters

Page 16: Are Mena’s exporters fighting with their hands tied? New firm-level evidence

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

0.25

0.28

0.28

0.32

0.33

0.35

0.38

0.38

0.38

0.47

0.52

0.53

0 .1 .2 .3 .4 .5Exporter Entry Rate

Egypt

Pakistan

Bangladesh

Turkey

Morocco

Lebanon

Jordan

Bulgaria

Chile

Iran

Yemen

Kuwait

0.22

0.27

0.27

0.29

0.32

0.34

0.35

0.37

0.40

0.51

0.53

0.54

0 .2 .4 .6Exporter Exit Rate

Bangladesh

Pakistan

Egypt

Turkey

Jordan

Morocco

Chile

Lebanon

Bulgaria

Iran

Kuwait

Yemen

Averages for 2006-2008 period

Page 17: Are Mena’s exporters fighting with their hands tied? New firm-level evidence

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

0.02

0.02

0.03

0.04

0.04

0.05

0.05

0.05

0.07

0.17

0.20

0.24

0 .05 .1 .15 .2 .25Share of Entrants in Total Exports

Chile

Morocco

Egypt

Bulgaria

Bangladesh

Turkey

Pakistan

Jordan

Lebanon

Iran

Yemen

Kuwait

0.35

0.36

0.41

0.43

0.49

0.51

0.55

0.56

0.61

0 .2 .4 .61-Year Survival Rate of New Exporters

Chile

Lebanon

Iran

Morocco

Jordan

Egypt

Turkey

Pakistan

Bangladesh

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)

Page 18: Are Mena’s exporters fighting with their hands tied? New firm-level evidence

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.

Page 19: Are Mena’s exporters fighting with their hands tied? New firm-level evidence

# 4

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

Page 20: Are Mena’s exporters fighting with their hands tied? New firm-level evidence

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

18.60

0.10

1.500.20-1.302.40

-8.20

-3.80

-36.30

-1.60

-40

-20

020

Jordan Lebanon Egypt Morocco Yemen

Continuing exporters Net entry of exporters

18.10

-0.30 1.500.00-0.60-0.60

-8.90

0.70

-29.00

-7.30

-40

-20

020

Jordan Lebanon Egypt Morocco Yemen

Continued destinations Net entry of destinations

17.80

0.30

1.400.10-0.800.20

-9.60

0.70-1.60

-27.40

-30

-20

-10

010

20

Jordan Lebanon Egypt Morocco Yemen

Continued products Net entry of products

Page 21: Are Mena’s exporters fighting with their hands tied? New firm-level evidence

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

18.60

3.20

-3.101.503.20

-3.00 -1.304.70

-2.30-8.20

4.10

-7.90

-36.30

5.30

-6.90-40

-20

020

Jordan Lebanon Egypt Morocco Yemen

Continuing exporters New exportersExiting exporters

18.10

3.40

-3.701.50

6.10

-6.10-0.60

6.60

-7.20 -8.90

4.30

-3.60

-29.00

4.90

-12.20

-40

-20

020

Jordan Lebanon Egypt Morocco Yemen

Continued destinations New destinationsExiting destinations

17.80

5.90

-5.601.405.70

-5.60-0.804.50

-4.30-9.60

3.80

-3.10

-1.605.70

-33.10

-40

-20

020

Jordan Lebanon Egypt Morocco Yemen

Continued products New productsExiting products

2011-2012 export growth decomposition

Page 22: Are Mena’s exporters fighting with their hands tied? New firm-level evidence

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

17.10

12.60

22.50

0.60

21.40

-4.40

-16.10

5.60

-25.60

9.10

-40

-20

020

40

Jordan Lebanon Egypt Morocco Yemen

Continuing exporters Net entry of exporters

15.90

7.10

3.80

18.70

-2.80

24.20

-16.60

0.60

-5.40

-20.10

-30

-20

-10

010

20

Jordan Lebanon Egypt Morocco Yemen

Continued destinations Net entry of destinations

12.30

3.70

3.600.20

2.90

-5.70

13.60

-19.00 -17.50

0.80

-20

-10

010

20

Jordan Lebanon Egypt Yemen Morocco

Continued products Net entry of products

Page 23: Are Mena’s exporters fighting with their hands tied? New firm-level evidence

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

17.10

32.00

-19.40

22.50

16.40

-15.80

21.40

19.20

-23.60-16.10

21.30

-15.70

-25.60

26.80

-17.70

-50

050

Jordan Lebanon Egypt Morocco Yemen

Continuing exporters New exportersExiting exporters

15.90

12.50

-5.403.80

33.60

-14.90

-2.80

48.10

-23.90

-16.60

8.70

-8.10

-5.40

9.90

-30.00

-40

-20

020

40

Jordan Lebanon Egypt Morocco Yemen

Continued destinations New destinationsExiting destinations

12.30

10.40

-6.70

3.60

7.70

-7.50

2.90

12.20

-17.90

13.60

11.60

-30.60

-17.50

7.40

-6.60

-40

-20

020

Jordan Lebanon Egypt Yemen Morocco

Continued products New productsExiting products

2008-2012 export growth decomposition

Page 24: Are Mena’s exporters fighting with their hands tied? New firm-level evidence

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 finance• Weak 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 MENA’s firms.

Page 25: Are Mena’s exporters fighting with their hands tied? New firm-level evidence

Thank you

Page 26: Are Mena’s exporters fighting with their hands tied? New firm-level evidence

Mena’s under-trading - Macro evidenceFreund and Behar, 2011

• Cross-section gravity : MENA’s 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: MENA’s 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.