Trade indicators of specialization Sources: Mucchielli Mayer (2005).

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Trade indicators of internatonal specialization

Aim of this lecture: to provide the general picture of the most important indicators of trade specialization. get familiar with the "numbers of trade". what are this numbers used for?

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Goods

The Standard Internaitonal Trade Classi…cation (SIT, UN). …ve main levels, then sections. trade is dis/aggregated so as to get more that 3000 items. Latest in 2006.

Harmonized Commodity Description and Coding System (HS, World Customs Organization) six digit nomenclature. Can go up to 10 digits for national statistics. basis for international trade statistics and trade negotiations. (basis to collect internal taxes).

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Industries

International Standard Industrial Classi…cation of All Economic Activities (UN) OECD: activities recorded depending on the technological intensity.

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Trade specialization indicators Comparative advantage

' it de…nes the goods for which a country has a better performance in terms of production costs. However, how to get data on production costs? B. Balassa (1965) Xi ,j /Xi ,tot Bij = 100 Xoecd ,j /Xoecd ,tot where Xi ,j =exports of country i in sector j. Xi ,tot =tot exports of country i. If Bij > 100, the country is specialized in that sector with respect to its partners.

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The contribution to the trade balance: the CEPII indicator

CEPII =

1000 (NXi GDP

NXtot )

Xi + Mi Xtot + Mtot

it compares the trade balance of the industry i with that of the country (weighted accounting for GDP and the weight of that industry in the country). It is related to the degree of openness of the country. Not a¤ected by the degree of sectoral disaggregation; but (contrary to Balassa) it does not account for the specialization of RoW. PS: EU: Chemistry and mechanics (+); textiles, electronics and energy (-)

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Sectoral labor costs and comparative advantage

lci ,j =

LCi ,j LCtot,j

100

LCi ,j = per unit labor cost of branch i in country J. LCtot,j =per unit labor costs in the whole industry, in country J. lci ,j = relative per unit labor cost of branch i in country j. lcii ,j =

lci ,j ∑ LCi ,k

lcii ,j = comparative advantage of coutry J in industry i. if lcii ,j < 100 ! comparative advantage.

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Inter-industry specialization indicator

The Michaley indicator allows to evaluate the joint existence of import and export industries. Xij Mij 1 j j Ij = 21∑ X Mj j i N Xij = exports of country j in industry i. Xj = total exports of country j. The higher I the more di¤erent the trade balance of each industry. (in Europe it has trended downward; consistent with intra-industry trade specialization in the depevoped world.) 0 I 1

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Consistency between specialization and world demand

This indicator evaluates the consistency between export production and world demand (i.e., world exports of the industry with respect to total world exports). Xij Xitot 1 j j Aj = ∑ 2 1 i N Xj Xtot If Aj large, the country exports a lot with respect to world demand. 0 A 1. What about OECD ? (A small)

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Indicators of technological advantage: just calculate the Balassa indicator for technology intensive industries. The indicator has increased signi…cantly for the East Asian countries. Quantities vs composition. What if we focus on trade QUANTITIES instead of trade ‡ows COMPOSITION? ! the gravity principle: β Yiα Yj Mij = G dijδ Mij = imports volumes of country i coming from j. dij = distance between the 2 countries. This principle is consistent with the models of monopolistic competition; it is at the roots of geographical economics.

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Intra-industry specialization: the Grubel-Lloyd indicator

Measures intra-industry trade. GLj =

Xj + Mj j Xj Xj + Mj

Mj j

ex: Xj = 70; Mj = 30; NX = 40; GLj = 0.6 total trade: 100; 60% INTRA industry trade. The rest is inter-industry.

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Interpretation of the G-L coe¢ cient

: Geographical bias. What if country A imports good X from country B and seels it to country C? Sectorial bias. How much into details we go to consider an industry.

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Intra-industry trade

Di¤erentiated goods: Horizontal di¤erentiation (features such as shape, colors..): if unit value (P/Q) of imports and exports di¤er for less than 15%. Vertical di¤erentiation (quality)

Decomposition: di¤erent degrees of "…nal" goods.

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