Assessing Export Competitiveness

1. AssessingExport Competitiveness Jean-Pierre Chauffour Economic Advisor, International Trade Department PREM Learning Week April 24, 2008

2. Export Competitiveness (EC)SessionOutline • 9:00-9:30 Introduction to the EC framework • Jean-Pierre Chauffour (Advisor, PRMTR) • 9:30-10:15 Assessing the incentive system • Paul Brenton (Senior economist, PRMTR) • 10:15-10:30 Coffee break • 10:30-11:15 Services trade • Gianni Zanini (Lead Economist, WBI) • 11:15-12:00 Proactive policies • Mallika Shakya (Economist, PRMTR) • 12:00-12:30 Q&As

3. Export Competitiveness Framework:Key messages • In practice, export competitiveness has gained traction in many countries • In theory, the EC literature is diverse, evolving, but largely converging (Lucas, Romer, Porter, Rodrik, Growth Commission) • A flexible three-pillar framework can be applied • A growth area in the Bank anchor (trade strategy, GPG, Aid for Trade) and country operations (e.g, Mauritius)

4. Rapid growth is associated with openness Real Exports / GDP in 1997 Average real GDP per capita growth (1997-2007) Source: DECPG

5. The speed with which countries opened is also positively associated with faster growth Change in Real Exports / GDP (2007-1997) Average real GDP per capita growth (1997-2007) Source: DECPG

6. Trend developing country growth has become decoupled from trend high-income growth Developing and high-income growth and trend growth Developing countries High-income countries Source: World Bank, DECPG.

7. Developing country exports increased faster than GDP (and faster than world exports) Average annual growth of GDP and Exports, 1990-2007 Real Exports Real GDP Source: DECPG

8. Technological progress in developing countries has outpaced high-income countries Percent change in technological achievement, 2000s vs 1990s Source: World Bank

9. Technology gap: narrowing but still wide Index of technological achievement 2000s 1990s Source: World Bank

10. Diverse Literature and Evolving Concepts and Associated Practice • Recent and not-so-recent schools – examples • Micro-foundation of competitiveness (Porter) • Industry-specific approach (Mc Kinsey) • Institutions (Rodrik and Sabel) • Pervasive in the more “generalist” literature (Lucas, Romer, Krueger, Bhagwati, etc.)

11. Concept (1) - Micro-Foundations Approach • Sound macroeconomic policies and stable political and legal institutions are necessary but not sufficient conditions to ensure a prosperous economy • Competitiveness, based on the productivity with which nations produce goods and services, is rooted in a nation’s microeconomic fundamentals Michael Porter will deliver a lecture to Bank staff this afternoon from 3:00 to 5:00 pm, Room I2-250

12. Concept (2) - Industry specific approach • Methodology to examine the binding constraints in factor markets in specific export industries of interest to developing countries (garments, agriculture, metals and minerals, tourism, light manufacturing) • It is not about ‘picking winners’, especially in low-income countries with obvious revealed comparative advantages and limited institutional capacity • It is about informing macro-policy making (e.g., exchange rate policy, fiscal policy, labor policy, land policy, competition policy, etc.) • Source: Palmade (2005)

13. Concept (3) - Developing Right Institutions • Market failures contribute to slow growth and demand proactive policies • New approach to ‘Industrial policy’ to speed up the process of structural change towards higher productivity activities • Emphasis on getting right the strategic collaboration with the private sector • Emphasis on processes and procedures as opposed to specific policy instruments or sectors (old industrial policy) • Gradual, cumulatively transformative change through identification of bottlenecks and self-correction Source: Hausmann, Rodrik, and Sabel (2003, 2004, 2007)

14. A stylized observation: Export Diversification – Products and Markets Expanding existing products in existing markets has greater weight in export growth than diversification into new product and into new geographic markets Source: Brenton and Newfarmer (2007)

15. DTISs - Precursor Work on Export Competitiveness • About 40 DTIS completed, of which 23 in Africa • Focus on impediments to export growth in low-income countries • Main findings: • Addressing at-the-frontier obstacles important, but not sufficient • Importance of the behind-the-border agenda • Trade logistics • Standards

16. Incentive Framework The necessary macro and trade policy Conditions for trade growth Services and Costs Improving the business enabling environment and Infrastructure for exports • Overcoming market and government failures • Making markets work for trade through public-private dialogue, • adaptation of technology and quality, • institutions and policies for export promotion, • special zones, global linkages • incentives like trade finance, matching grants, duty drawbacks, • industry-specific policies and constraints The Three-Pillar Framework

17. A flexible framework adaptable to country circumstances • First generation reforms yet to be completed in many LICs despite macro-stabilization achievement • It includes: • Addressing the anti-export bias • Improving functioning of factor markets • Strengthening the regulatory and administrative environments • Investing in trade infrastructure including transport, energy, and trade logistics.

18. Implementing the Export Competitiveness – Current Status • Implementation in a number of country ESWs and lending • Mauritius, Mozambique, Tanzania, Madagascar,Tunisia, Egypt and Libya • Scaling-up of trade work in the Anchor • Benchmarking indicators and database: LPI, WTI, WITS, and soon SEZ worldwide database; global Buyers’ studies • Toolkits: Revenue impact of tariff reforms (TRIST); • Learning activities: Porter; Bhagwati; BBLs • Additional resources: BB and MDTF

19. Example: Mauritius Competitiveness Review: Far-Reaching Recommendations • Long-term decline in competitiveness and “triple trade shock”. • Move resources – labor, land, investment capital -- out of inefficient activities and into internationally efficient ones • Incentive regime • Move to duty free island (end of EPZ status and normal system of VAT rebates on exports) • Reform corporate income tax • Release land and labor from sugar to alternative uses • Early depreciation of rupee • Opening of the air transport market to support growth in tourism • Strong telecom regulation to curb monopoly practices • Reform ports and upgrade facilities to develop global transshipment and become a regional hub • Access to training • Target unemployed, not only employed • Develop higher skills: greater investments in particular schools (e.g., the Hotel School of Mauritius), improvements in university courses leading to employment in high growth sectors (such as tourism and ICT).

20. Some Caveats to the Focus on Export Competitiveness • Not an end in itself but a growth vehicle • It is ultimately about imports (of technology) • It is part of a global positive sum gain • Export Competitiveness is not always a priority • It is not exclusively or mainly about countries !