MENA’s Export Superstars

Caroline FreundMarch 2014

Motivation: Extreme Lumpiness in Exporter Data

No. of firmsMedianSS/MedianNSS

AverageSS/AverageNSS

SS Share

SS Man. Share

Average top 1% 55 1459 164 53 54Median top 1% 28 1195 108 53 52Average 1 32458 586 14 17Median 1 8298 258 11 12Average 10 7011 283 39 42Median 10 2171 138 36 41

Exporter Concentration Increasing in Stage of Development

ALB

BELBFA

BGD

BGRBRA

BWA

CHL

CMR

COLCRI

DOM

ECU

EGY

ESP

ESTGTM

IRNJOR

KEN

KHM

LAO

LBNMAR

MEX

MKDMLI MUSMWI

NERNIC

NORNZL

PAK

PER

SEN

SLV

SWE

TZA

UGA

YEM

ZAF

.2.4

.6.8

1S

hare

Top

1%

6 7 8 9 10 11Ln GDPpc

Share of Top 1% of Exporters - lnGDPpc

Motivation Continued• Important Implications

– Individual firms matter, as in Gabaix (2011), shocks to individual firms can have aggregate effects, export growth and diversification

– Individual firms affect type of exports (effectively, comparative advantage)

• Firms affect technology and RCA can be dependent on a handful of firms.

– Greater role for oligopoly and FDI—not a draw, but firms bring productivity from abroad (Neary 2009).

– Fixed versus variable costs and welfare- Entry costs matter much less that variable costs since infra-marginal firms are small (di Giovanni and Levchenko 2010)

• Where do big firms come from?– If big firms drive exports, where do they come from?

Export Superstars

• Large exporters (Superstars) define exports (Freund and Pierola, 2012).– Superstars drive export growth and diversification. – Superstars drive sectoral export patterns and

comparative advantage in some industries.– Superstars are born relatively large and grow fast

• MENA’s export performance has been very weak. What is the role of MENA’s superstars in explaining it?

Export Superstars

• Large exporters (Superstars) define exports (Freund and Pierola, 2012).– Superstars drive export growth and diversification. – Superstars drive sectoral export patterns and comparative

advantage in some industries.– Superstars are born relatively large and grow fast

• MENA’s export performance has been very weak. What is the role of MENA’s superstars in explaining it?– Punchline: Mena’s elite export team is in need of a deeper

and more dynamic bench.

I. Data and Superstars Characteristics

Data used for this paper: Exporter-level information on non-oil exports for 32 countries for period 2004-2010

Exports are Defined by a Few Big Firms

All countries MENA (blue) vs. Non-MENA (red)

01

23

45

16 17 18 19 20 21Ln(size exporter 2008)

01

23

45

lnr

16 17 18 19 20 21Ln(size exporter)

In MENA, top firm is relatively larger given the distribution of the other firms.

Relationship is linear. Distribution follows Zipf’s law.

Ln (average size 2008) Ln (average size 2008)

Ln (rank)Ln (rank)

MENA’s Elite Compared

Number of Superstars

Ratio MedianSS/MedianNSS

Ratio Top Exporter/MedianNSS

Ratio Median Top 10/MedianNSS

(1) (2) (5) (8)52 572 9,540 2,055 28 1,195 8,298 2,171

SS = Top 1% of Exporters SS = Top Exporter SS = Top 10 Exporters

All MedianMENA Median

Region

MENA vs. All countries: Top exporter is relatively bigger in MENA.

If taken as a group (top 1% of firms), MENA’s superstars are relatively smaller.

II. Superstars’ role in export growth and diversification in MENA

Growth Accounting

• Superstars contribution to overall growth• Superstars contribution to diversification

– Last 3-consecutive-year period available for each country

– Intensive margin: all export flows at the country-HS 6 digit that existed in both Year 1 and Year 3

– Extensive margin: export flows at the country – HS 6 digit that disappear or appear in Year 3 (with respect to Year 1)

Superstars: Export Growth and Diversification

Int NSS (1) Int SS (2) Ext NSS (3) Ext SS (4) Total NSS (5) Total SS (6) Total Growth (7)

Median MENA 0.22 0.66 0.02 0.10 0.24 0.76 40.96%Median SSA 0.28 0.50 0.13 0.17 0.36 0.64 46.39%Median LAC 0.34 0.60 0.04 0.02 0.39 0.61 27.69%Median ROW 0.62 0.32 0.05 0.04 0.66 0.34 29.76%Median ALL 0.37 0.48 0.06 0.07 0.44 0.56 34.46%

Median MENA 0.37 0.29 0.10 0.04 0.69 0.31 40.96%Median SSA 0.75 0.04 0.22 0.00 0.91 0.09 46.39%Median LAC 0.85 0.03 0.04 (0.00) 0.97 0.03 27.69%Median ROW 0.86 0.01 0.09 0.01 0.96 0.04 29.76%Median ALL 0.82 0.05 0.10 0.01 0.92 0.08 34.46%

Median MENA 0.30 0.58 0.03 0.13 0.33 0.67 40.96%Median SSA 0.51 0.34 0.15 0.16 0.64 0.36 46.39%Median LAC 0.60 0.37 0.04 (0.00) 0.64 0.36 27.69%Median ROW 0.76 0.23 0.07 0.02 0.77 0.23 29.76%Median ALL 0.55 0.31 0.07 0.04 0.65 0.35 34.46%

Top Firm

Top 10

Share in Total Growth

Top 1%

0.44 0.56

Superstars contribute to more than half overall growth across countries

0.69 0.31

Top firm is particularly notable in MENA

0.37 0.48 0.06 0.07

They also explain more than half of growth in both margins of trade.

0.92 0.08

0.10 0.04

0.10 0.01

III. Superstars and Sectoral Export Patterns

Variation in Sectoral Export Pattern from Superstars

Top 1% Top1 Top100

10

20

30

40

50

60

70

80

MENA OTHERS

Superstars Contribution to Comparative Advantage

Apparel

Chemica

ls

Elecri

cal m

achinery

Food an

d kindred

products

Stone,

clay a

nd glass

Machinery

Metals

Mineral p

roducts

Miscell

aneo

us goods

Paper

Plastic a

nd Rubber

Precious M

etals

Texti

les

Transp

ort

Wood

00.040.080.120.16

0.2

Comparative Advantage Sectors

MENA OTHERS

Apparel

Chemica

ls

Elecri

cal m

achinery

Food an

d kindred

products

Stone,

clay a

nd glass

Machinery

Metals

Mineral p

roducts

Miscell

aneo

us goods

Paper

Plastic a

nd Rubber

Precious M

etals

Texti

les

Transp

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Wood

00.20.40.60.8

11.2

Superstars Driven Comparative Advantage

MENA OTHERS

IV. Superstars’ Dynamics

Superstars were already big a decade ago, or they are new firms

Over 50 percent of 2010’s Moroccan superstars were already so in 2002.

Sense of less dynamism among top firms in Morocco.

Strong staying power of exporters in Morocco

There is little transition of firms to other parts of the firm size distribution

Numbers in diagonal for Morocco are in all cases higher than corresponding numbers for Costa Rica and Peru

Firm size distrib. in 2002

Firm size distribution in

One Firm Can Change Comparative Advantage

Costa Rica Morocco

Electrical Machinery Misc. Paper

Electrical Machinery

Reversal year 2005 2006 2008 2005Revealed Comparative AdvantageRCA start 0.45 0.44 0.55 0.81RCA at Reversal 1.27 1.08 1.13 1.01RCA end 1.24 1.04 1.13 1.09Revealed Comparative Advantage, excluding the top firmRCA start 0.45 0.32 0.32 0.39RCA at Reversal 0.63 0.67 0.49 0.66RCA end 0.49 0.75 0.49 0.88Top Firm Export share at start 0.01 0.29 0.43 0.55Export share at reversal 0.56 0.41 0.57 0.39Export share end 0.65 0.30 0.57 0.22

Conclusions• Importance of top similar in MENA to the rest of the world.

– Single largest firm in MENA tends to be relatively large as compared with countries in other regions. The other top firms are not as outstanding.

– MENA superstars contribute more to growth and diversification, especially top firm.

– MENA superstars contribute less to creating new comparative advantage sectors.

– Some evidence of less churning among MENA’s superstars.• Consistent with evidence from private sector studies• Relatively old managers• Relatively old firms

=> Weak lifecycle dynamics in MENA, not enough exporters able to grow into large global exporters and break new industries.

Policy Implications

• Variable rewards/costs matter more than fixed costs– Exchange rate is critical—overvaluation has huge

costs.– Trade costs, tariffs and customs are important– Business climate must not impede firm growth– Trade agreements

• SME financing is not a viable tool for export growth