World Trade Competitiveness: A Disaggregated View by Shift-Share Analysis

Abstract

We develop an improved shift-share methodology and employ it to estimate the trade competitiveness of 88 world countries during the 1995-2002 period and to identify factors that drove each country’s increase or drop in exports market share. Along with the export competitiveness, we consider the geographical and sectoral dimension of countries’ initial position on different import markets and of their capacity to adapt to shifts in the world economy. Differently from the traditional method employed in the literature, our procedure yields identical results regardless the order in which trade is decomposed in geographical and sectoral factors. Moreover, it produces standard errors and permits to evaluate the statistical significance of each effect.During this period, the strong demand for elaborated products has benefited the developed countries and disadvantaged most of the South, especially the least-performing countries. Despite the unfavorable sectoral breakdown of the global import demand, exporters from the South recorded remarkable gains in market share over the 1995-2002 period. The emergence of the South, not just as a supplier of the North but as well as a rapidly expanding market, was mainly driven by Central and East European countries along with Turkey on one hand, and emerging Asian countries on the other hand. These gains are mainly explained by the competitiveness of their exports, which largely compensated for disadvantages linked to their sectoral specialisation. In Latin America, the improvement in competitiveness just offsets the major handicap in sectoral specialisation, without allowing most of the countries to maintain their market share. African and the Middle East countries accumulate both unfavourable sectoral and geographic specialisations, as well as a poor adaptation to the markets’ dynamics.The EU recorded the best performance in the North by maintaining its market share, especially on the domestic market, regardless the emergence of Southern exporters. On the contrary, competitiveness and market share losses by the US and Japan are significant and of similar magnitude. Japanese exports have suffered from the general weakening of the domestic economy, while the high level of the dollar in the beginning of the period has reduced the competitiveness of American products. For both countries, however, such sluggish competitiveness was slightly compensated by other factors: geographical advantages for the US and sectoral advantages for Japan.