Category Archives: Development

Export pioneers

In a NBER working paper, Artopoulos, Friel, and Hallak describe how firms in Argentina learned to successfully export to high-income markets:

Several developing countries feature weak performances as exporters of differentiated goods to developed countries. This paper builds a conceptual framework to explain the obstacles that prevent producers of differentiated products from establishing a consistent presence in the developed world and the process through which those obstacles may be overcome. We build our framework based on case studies of export emergence in four Argentine industries: motorboats, television programs, wines, and wooden furniture. We find that exporting consistently to developed countries requires drastic changes in how business is conceived and conducted relative to the practices that prevail among domestically-oriented firms. Attempts by these firms to export often do not succeed because they approach foreign markets the same way that they approach the domestic one. Their failure to change the business approach stems from their inability to access critical (tacit) knowledge about differences in consumption patterns and business practices in developed countries. In three of the sectors we study, an export pioneer is the first to implement the necessary changes to established practices. His actions set a benchmark, unleashing a diffusion process that fosters export emergence in the sector. The most salient feature of export pioneers is their knowledge advantage about foreign markets stemming from their embeddedness in the business community of their industry in a developed country.

Sutton & Trefler: “Deductions from the Export Basket: Capabilities, Wealth and Trade”

If you’re keen on the literatures about trade and product quality or economic growth and the export basket, you should probably check out NBER 16834:

This paper re-explores the relation between a country’s level of wealth and the mix of products it exports. We argue that both are simultaneously determined by countries’ capabilities i.e. by countries’ productivity and quality levels for each good. Our theoretical setup has two features. (1) Some goods have fewer high-quality producers/countries than others i.e. there is Ricardian comparative advantage. (2) Imperfect competition allows high- and low-quality producers to coexist, which we refer to as ‘product ranges’. These two features generate a very particular non-monotonic, general equilibrium relationship between a country’s export mix and its wage (GDP per capita). We show that this non-monotonicity permeates the 1980-2005 international data on trade and GDP per capita. Our setup also explains two other facets of the data: (1) Product ranges are huge and (2) for the poorest third of countries, changes in export mix substantially over-predict growth in GDP per capita. This suggests that the main challenge for low-income countries is to raise quality and productivity in their existing product lines.

The export market test

Tyler Cowen on exports and development:

Have you ever wondered why so many developing economies—the successful ones, I mean—rise to prosperity through exports and tradable goods? There are a few reasons for this, but one is that the external world market provides a real measure of value. If you are exporting successfully, it’s not based on privilege, connections, corruption, or fakery. Someone who has no stake in your country and no concern for your welfare is spending his or her own money to buy your product. Trying to export is putting your economy to the test with measurable results. If you can pass this test, it is a sign of better things to come.

There’s a massive debate about whether exports are a cause or symptom of good growth, but I think both sides agree with this point about the export market test.

What is “African growth”?

Lant Pritchett provides some numbers to underscore a classic argument:

Perhaps the best thing the developed world could do for the growth prospects of Africa is to stop talking about the growth prospects of Africa…

The growth rate of GDP per capita across 155 countries in the world from 2000-2005 (using data from the latest Human Development Report) was 2.2% per annum and the standard deviation of that growth rate was 3.8.

Among the 21 countries in Western Europe the average growth rate over this period was 3.5% and the standard deviation among countries in Western Europe was 1.5. Now that’s a pretty good aggregate, knowing that country X is in the group “Western Europe” shifts my priors a bit upward, European growth was better and reduces my uncertainty about its growth rate by a lot—I am pretty sure it didn’t have negative growth nor growth at 8%.

Now take the 45 countries in Sub-Saharan Africa. Over 2000-2005 the average growth rate was 2.2%—exactly the global average—but the standard deviation among African countries was 6.1%—much higher than the global variance. This is a terrible aggregate. All knowing that country X is “African” has done for me is increase the variance—I am not sure whether it was growing very fast (as were Sierra Leone and Mozambique) or collapsing (as were Liberia and Cote d’Ivoire).