Export dynamics and diversification in the Lao PDR An analysis of - - PowerPoint PPT Presentation

Export dynamics and diversification in the Lao PDR An analysis of the product space

Richard Record and Konesawang Nghardsaysone The World Bank, Vientiane Office ERIT Trade Research Forum October 6, 2010

Background

• Draft background paper to the Lao Development

Report / CEM.

• Part of World Bank analytical programme under the

Trade Development Facility.

• Summary of presentation:

– Introducing the product space – Methodology and data analysis – Mapping the Lao product space – Indicative conclusions

• Overall aim is to give broad hints as to future direction
• f exports, given the challenges of lack of

diversification in the Lao PDR.

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INTRODUCING THE PRODUCT SPACE

The Lao product space

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A network of products in world trade

• New concept that

shows a map of products traded between countries.

• All countries face

the same map…

• …but trade only a

limited subset of products.

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• il

fruits Vegetable oils Forest and paper products cereals Mining Vehicles Machinery electronics chemicals Animal agriculture textiles metallurgy garments products vegetables fish

• il

fruits vegetable oils forest and paper products cereals mining vehicles machinery electronics chemicals animal agriculture textiles metallurgy garments products vegetables fish coffee and cocoa

Rationale

• “What you export matters” (Hausmann and

Rodrik 2007).

• Universe of available goods (the “product space”)

is not homogenous – different future consequences for producing different goods [“monkeys in the forest” analogy].

• Ceteris paribus:

– A country is better off producing goods that richer countries produce. – Countries that export goods associated with higher productivity levels grow more rapidly.

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Some important limitations

• The product space methodology only captures

data for exports (not production).

• Services are not covered.
• The domestic market (including import

substitution) is not covered.

• Only provides broad hints on the future

direction of exports, that need to be further examined in the Lao context.

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ANALYZING THE LAO DATA

The Lao product space

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Technical concepts

• PRODY – the notional income level of a product.

– Every good has a PRODY, higher is better. – Weighted average of per capita income in US$ of countries that export the good, e.g. Raw cotton = 530, Electronic microcircuits = 11,907.

• EXPY – the notional sophistication of a country’s

export basket.

– Every country has an EXPY, higher is better. – Weighted average of a country’s PRODYs, e.g. Lao PDR = 5,414, Thailand = 12,300.

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More technical concepts

• “Revealed Comparative Advantage” – means of

classifying products.

– Measure of the relative export performance of a country in a given product. – RCA>1 = comparative advantage, RCA<1 = not.

• PATH – the export diversification potential of a

product.

– Every good has a PATH, higher is better. – Index of the linkages between one product and

• thers, e.g. Copper = 105, Footwear = 149.

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Looking at the product level

• 4-digit SITC data, we filter for annual exports >

US$ 500k/year.

• Leaves us with 54 “major” export products.
• Classify according to four groups:

– CLASSICS – DISAPPEARANCES – EMERGING CHAMPIONS – MARGINALS

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Cl s Di s Ma es E

Looking at the product level (cont.)

Matrix Products By Tech Category Average PRODY Average Path Average sum of exports (US$ m) Average share of total exports (%) P P H V R B L T M T HT 85-89 90-94 95-99 00-04 05-06 Classics 6 4

• 2
• 2,472

102 20.1 (63.5 %) 57.1 (49.5 %) 73.2 (29.5 %) 133.7 (37.1 %) 144.5 (20.9 %) Disappear ances 2

• 2
• 7,435

134 5.5 (16.4 %) 9.2 (6.9% ) 15.1 (5.9% ) 2.8 (0.7% ) 0.4 (0.1% ) Emerging Champion s 36 9 3 7 16

• 1

5,849 121 2.4 (7.8% ) 43.9 (32.5 %) 141.2 (57.2 %) 173.0 (47.6 %) 563.5 (73.4 %) Marginals 10 2

• 7

1

• 8,181

125 1.8 (2.4% ) 2.0 (1.4% ) 6.2 (2.4% ) 4.9 (1.3% ) 17.5 (2.6% ) Totals 54 15 3 18 17 1 5,414 * 117*

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Looking at the product level (cont.)

• Wide range of PRODY levels across the Lao

basket, not restricted to technology category.

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2 4 6 8 10 12 14 Electric current Jackets,blazers of textile fabrics Footwear Coats and jackets of textile fabric ,Overcoats and other coats men,s Under garments,knitted,of synthetic Dresses,women's,of textile fabrics Blouses of textile fabrics Skirts,women's,of textile fabrics Vegetable products,roots tubers,f & Maize (corn),unmilled Gypsum,plasters,limestone flux & ca Buckwheat,millet,canary seed,grain Rice in the husk or husked,but not Groundnuts peanuts),green,whether( Sesame (sesamum)seeds ;Natural rubber latex & nat.rubber Wood of coniferous species,sawn,pla Manufactured articles of wood,n.e.s .Wood-based panels,n.e.s Gold,non-monetary Copper and copper alloys,refined or Tin ores and concentrates

PRODY ('000) Primary products Resource based Low tech High tech

Analyzing the Lao export basket

• Positive relationship between product income level

(PRODY) and scope for diversification (Path).

• But the more significant products are located in a region

with low PRODY and Path.

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2,000 4,000 6,000 8,000 10,000 12,000 14,000 40 60 80 100 120 140 160 180

Path PRODY

Low PRODY Medium PRODY High PRODY Low Path High Path 2,000 4,000 6,000 8,000 10,000 12,000 14,000 40 60 80 100 120 140 160 180

Path PRODY

Low PRODY Medium PRODY High PRODY Low Path High Path

Classics Disappearances Emerging Champions Marginals

Classics Disappearances Emerging Champions Marginals

MAPPING THE PRODUCT SPACE

The Lao product space

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International comparisons

• What should the product space look like?

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The Lao product space

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• Small subset of

total products.

• Empty core.
• Mostly peripheral

products.

• Two groupings of

related products.

Compared to regional peers

Lao PDR Vietnam

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Cambodia

With product details

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The classics

(Products where the Lao PDR demonstrates long-run comparative advantage)

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The disappearances

(Products where earlier comparative advantage has been lost)

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The emerging champions

(Products where comparative advantage has been discovered)

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The emerging champions

(Zooming in on the garments cluster)

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The marginals

(Products where exports are significant, but no comparative advantage)

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Some interesting results

• High PRODY and high Path: electric current, garments

(several products), footwear, livestock, cigarettes, cigarette lighters, processed vegetables, processed fruit, zinc.

• High PRODY and low Path: copper, gold, maize,

unprocessed vegetables, coffee (maybe), rice, silk (maybe).

• Low PRODY and low Path: rubber, tin, groundnuts,

sesame.

• Wood products sector: difficult to interpret but value

addition/transformation appears to result in starkly higher PRODY and Path.

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Indicative conclusions for Lao PDR

(Work-in-progress – comments very welcome)

• Lack of diversification – long run challenge.
• High rate of export discovery (long list of emerging

champions).

• But, not catching up with regional peers in terms of
• verall export basket sophistication.
• And, most products located around the periphery of

the product space, with generally low income values (PRODY) and limited scope for diversification (Path).

• However, increased variety of major export products

lays the foundation for future diversification.

• Our analysis provides some hints as to which sectors

might be of interest for public policy…

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Thank you!

• Draft paper is available for review and comment.
• For further information, please contact:

Richard Record rrecord@worldbank.org Konesawang Nghardsaysone knghardsaysone@worldbank.org

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