Import Impact of Economic Growth on Regional Economies

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1. Import Impact of Economic Growth on Regional Economies Presentation of Martins Priede Xi’an-Jiaotong - Liverpool University January, 2012 1 International Conference…
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  • 1. Import Impact of Economic Growth on Regional Economies Presentation of Martins Priede Xi’an-Jiaotong - Liverpool University January, 2012 1 International Conference on Economics, Marketing and Management (ICEMM 2012) Hong Kong, 5-7 February, 2012
  • 2. Introduction I  Assumption ◦ Increased import competition and global integration of economies causes structural changes in people’s income ◦ Europe has advanced manufacturing industries, but increased level of sophistication of its main trade partners might cause decline of European income: as consumers switch to imported products thus causing local manufacturing to contract and thus decrease income per capita  Increased import competition is measured by two means: ◦ Increase of import value (due to increased international trade volumes – less barriers to international trade, lower transportation and communication costs) ◦ increase of import sophistication level (due to increase of import partners technological production capabilities, R&D inputs, quality improvements etc.) 2
  • 3. Introduction II  Increase of import value can cause changes in regional income ◦ in less competitive regions – income per capita will decrease significantly due to imports (imported goods will replace those locally manufactured - reducing demand for locally made manufacture) ◦ in more competitive regions - employment in manufacturing will not be affected by imports (increase of imported goods sophistication doesn’t cause demand reduction of local manufacture). Products imported cause competition in sophisticated market segment  Research includes import competition both from inside and outside EU. Included trade partners ◦ EU external trade partners: Brazil, China, Japan, Korea and Turkey ◦ EU internal trade partners: Germany, United Kingdom, The Netherlands and France 3
  • 4. Introduction III  Motivation ◦ Analyze competitiveness of regional economies facing internal and global competition ◦ To observe, if income pc of inhabitants at regional level due to competition from internal, external competitors ◦ To look into firm size and industry regional concentration in regard to increased international trade ◦ Previous studies about influence of increased import sophistication concentrated on single countries or separated regions  Main goal ◦ Analyze European regional economies response to increased product sophistication of main import patterns 4
  • 5. Objectives  Estimate changes in regional economies due to increased economic integration within Europe and outside world in recent decade  Understand how regional economies respond to increased trade volume and import sophistication ◦ Analyze if regional income pc changes significantly ◦ Analyze trade with main partners and impact of bilateral trade ◦ Countries with highest import trade volume inside EU and outside EU ◦ Countries with different level of trade sophistication  Analyze regional economies by using lowest level data series possible with less proxy variables 5
  • 6. Existing literature measuring sophistication  How to measure export/import trade sophistication/product quality ◦ Unit value - sales divided by quantity measurement ◦ Unit value as measurement of product quality reviewed since 90’ies ◦ Theoretical basis (Stiglitz, 1987; Borin, 2008), empirical (Aiginger, 1997; Dulleck, 2005; Nielsen, 2000) ◦ Concept of unit value can be also understand as price Easy to calculate about all countries, consistent ◦ Alternatives: sophistication indexes based on exporting countries GDP (Lall, 2005; Xu, 2007) higher GDP countries export more sophisticated goods with their high wages and those are sophisticated goods which was more share in higher GDP countries trade ◦ In case of other countries Japan - falling import prices on employment in home economy (Tomiura, 2003; Sasaki, 2007)  US - papers discussing import impact on wages and employment at industry level (Hakura, 1997), competition with low wage countries (5%< US GDP) (Bernard, 2002) 6
  • 7. Existing literature and contribution  Papers discussing EU intra and EU extra trade ◦ EU extra-trade is increasing over EU intra-trade,   more entrants to market   increased world integration (Anderton, 2005) ◦ EU intra- and extra-imports can be substituted in short-term  European Monetary Union contribution to intra EU trade growth (Dieppe, 2007; Chen, 2004)  Intra EU growth found to be as result of reduced exchange rate volatility (Dieppe; 2007)  Contribution ◦ Previously not researched EU-wide import assessment on regional manufacturing employment ◦ Analyze trends of import competition in whole EU at regional level over 10 years period, uninterrupted, yearly basis 7
  • 8. AUV (Average Unit Value)  AUV = total volume of imports in product group / total quantity of imported products  Arguments for AUV usage ◦ Most of analyzed countries observed have high GDP and high unit values in trade with EU - high unit values suggest more costly R&D ◦ Most of high value products are patent protected, so not really substitutes (legally) ◦ Wholesalers are “market makers” – they decide price and quantities of product offered on market (this weakens price elasticities) ◦ Easy to measure, changes reflected over time ◦ Available at trade statistics lowest level ◦ Motivation to create trade is mostly for items not available in own country. For example, intra-EU AUV is lower than extra-EU trade AUV) 8
  • 9. Data highlights Description of data ◦ Source Eurostat ◦ Region specific data observed from 1995 to 2005, inclusive ◦ In country case studies, import to itself ignored - missing value ◦ All import data is common euro currency, in real terms ◦ Random effect panel analysis considered over fixed effects following to Hausman test ◦ Results are HAC consistent  Limitations ◦ Intra-EU and extra-EU export is not included ◦ Price elasticities are not estimated 9
  • 10. Trends of import value and AUV  Trends of import value ◦ Increasing trend observed for both EU extra and intra trade and all analyzed trade partners ◦ Average EU trade value has been increasing, on yearly basis 10.4% for EU extra and 6.8% for EU intra trade  Trends of import average unit value - AUV ◦ Suggesting increase in average unit value, average increase per year - 5.3% for extra-EU and16.3% for intra-EU trade 10
  • 11. Trends of import value  Biggest import partners, imports from US dominates 11 0 50 000 100 000 150 000 200 000 250 000 300 000 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 millionEUR USA China Japan Canada Switzerland Turkey Russia
  • 12. Trends of AUV  Yearly changes of AUV ◦ Intra EU is growing faster than extra EU, but steady growth not observed ◦ Strong growth for US, China and Korea ◦ Japan lesser growth as AUV is already very high 12
  • 13. Structure of transport mode  Years 2000-2008  Higher AUV choose air, whereas lower AUV choose sea transport 13
  • 14. Methodology I  Panel data, random effects model  ∑  Left side: ◦ GDP – local income pc at region r, in year t, import partner country p, number of import countries observed k, industries are j  Right side ◦ IIA – intra industry agglomeration, Tomiura (2003) (+)  specialization leads to increase in competitiveness ◦ SCL – scale at firm level, Tomiura (2003) (+),  bigger company size – assumed to be more competitive 14
  • 15. Methodology II ◦ AUV – value of imports for c countries  (-) when increased import value decreases local income pc  (+) when import increases local income pc  ϵ - error term captures all other effects on regional employment ◦ Region is assumed to import goods proportional to its regional GDP share in overall country’s GDP ◦ ∑ 15
  • 16. Data structure  Products  Industries  Regions  Countries 16 country 2country 1 region 1 region 1 R1 R2 R3
  • 17. Results I  Specifications: ◦ 1 – 3 impact of trade volume ◦ 4 – 6 impact of trade sophistication ◦ 1 and 4 impact of import from major trade partners ◦ 2 and 5 impact of aggregate import from inside/outside Europe ◦ 3 and 6 impact from major inside trade partners 17
  • 18. Results II, Import value and AUV SCL (+) average firm size IIA (-) negative influence of industry concentration EU intra negative effect EU extra positive effect 18 Value Value Value AUV AUV AUV (1) (2) (3) (4) (5) (6) Intercept 7.5235 a (0.0837) 7.2451 a (0.0374) 9.5881 a (0.0162) 9.5563 a (0.0125) 9.8099 a (0.0118) 9.5881 a (0.0163) Ln SCL index 0.0482 a (0.0072) 0.1109 a (0.0029) 0.0331 a (0.0078) 0.0411 a (0.0054) 0.1386 a (0.0032) 0.0328 a (0.0078) IIA index -0.0796 a (0.0061) -0.1043 a (0.0031) -0.0454 a (0.0064) -0.0533 a (0.0046) -0.1063 a (0.0033) -0.0455 a (0.0064) EU intra -0.0098 a (0.0033) -0.0171 a (0.0032) EU extra 0.1482 a (0.0029) 0.0128 c (0.0068) 0.0142 a (0.0025) 0.0129 c (0.0068) Ln Germany -0.0476 a (0.0054) 0.0004 (0.0079) 0.0044 (0.0061) 0.0004 (0.0079) Ln Netherlands 0.0674 a (0.0061) 0.0306 a 0(.0052) 0.0443 a (0.0053) 0.0306 a (0.0051) Ln UK 0.0707 a (0.0072) -0.0302 a (0.0061) -0.0441 a (0.0057) -0.0302 a (0.0061) Ln Brazil 0.0178 a (0.0033) -0.0105 a (0.0037) Ln China 0.0295 a (0.0041) 0.0066 (0.0056) Ln Japan 0.0024 (0.0048) 0.0386 a (0.0045) Ln Korea -0.0686 a (0.0039) 0.00848 c (0.0051) Ln Turkey 0.0161 a (0.0031) 0.0253 a (0.0037) Ln US 0.0438 a (0.0051) -0.0503 a (0.0055) R squared 0.1881 0.2333 0.0097 0.0222 0.0646 0.0097 Log likelihood -13546.76 -18802.12 -17370.31 -16498.53 -21721.81 -17370.31
  • 19. Results III, AUV and conclusion For import value:  Negative for Germany, but positive for Netherlands and UK  Positive and significant for other outside economies: Brazil, China, Japan, Turkey and US. Only negative with Korea For import sophistication:  For internal trade partners inconclusive: Germany – insignificant, positive for Netherlands, and negative for UK  For external trade partners: negative for Brazil and US, positive for Japan, Korea and Turkey, insignificant for China  Possible reasons for AUV positive influences observed for imports from Japan, Korea and Korea: intra firm imports, imports of licensed technology, imports of inputs  Possible reasons for AUV negative influences: import is substituting local production   In contrary to popular belief, results show positive effect of trade sophistication on regional GDP per capita, which did not suggest import substitution, but can be as a result of complementary or intra-firm trade 19
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