T HE I MPLICATIONS OF HO AND IRS T HEORIES FOR B ILATERAL T RADE F LOWS WITHIN S UB -S AHARAN A...
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Transcript of T HE I MPLICATIONS OF HO AND IRS T HEORIES FOR B ILATERAL T RADE F LOWS WITHIN S UB -S AHARAN A...
THE IMPLICATIONS OF HO AND IRS THEORIES FOR BILATERAL TRADE FLOWS WITHIN
SUB-SAHARAN AFRICA
Julie Lohi
West Virginia [email protected]
MOTIVATION
Why Bilateral trade Flows are Low within Sub-Saharan Africa (SSA)?
LITERATURE Hanink and Owusu (1998) Used trade intensity index (TII) Find that ECOWAS has failed to promote trade
Alemayehu and Haile (2008) Regional grouping has insignificant effects on bilateral trade
flows in SSA. Reasons: poor private participation, compensation issue.
Faezeh and Pritchett (2009) Trade flows are low within SSA Gravity prediction similar to actual trade
Piet and Wheeler (2010) Transport infrastructure and border restrictions are main reasons
for lower trade rate in SSA
CONTRIBUTIONS Trade evaluation based on imperfect specialization in
production
Show that comparative advantages matter in stimulating trade
SSA countries exhibit similar endowments
Products are not differentiated in the region
1996 1998 2000 2002 2004 2006 20080
5000000000
10000000000
15000000000
20000000000
25000000000
30000000000
35000000000
40000000000Trade in Differentiated Good Vs. Homogeneous Goods in SSA
Differentiated goodsLinear (Differentiated goods)Homogeneous goodsLinear (Homogeneous goods)
Year
Trad
e Va
lue
UNDERLYING TRADE THEORIES
Heckscher-Ohlin Theory: Heckscher (1919) and Ohlin (1933)
Predicts high trade for large differences in factor endowment ratios.
Increasing return to scale theory: Krugman (1979, 1980)
Predicts intensive trade between industries producing different varieties of a product.
The love of varieties creates demand across countries.
METHODOLOGIES A- Build on Evenett and Keller (2002) to estimate the gravity equation for 118 countries grouped into 5 regions
Where , , are respectively imports of country i from country j, GDP of country i, j, world and region;
is importing country’s specifics;
represent respective dummies for common language, colony, contiguity, and landlocked;
is the log of distance between country i and j.
(1),
(2),
(3),
(4)
METHODOLOGIES
B- Compute the Grubel Lloyd index as:
, ,
where, represents a commodity, the Grubel Lloyd index reflects the intra industrial trade
(imports and exports) of country from (to) country. export value from country to country in differentiated
goods imports value in good of country from
METHODOLOGIES
C- Assess capital () to labor () ratio difference within each region
Compute for each country and the difference between each pair of countries
DATA
118 countries across the world grouped into 5 regions: Asia, Europe and North America, Latin America and Caribbean, Middle East and North Africa, and Sub-Saharan Africa.
Panel from 1997 to 2007
Data on bilateral imports is extracted from the IMF-DOT
Data on Real GDP, Investment Share, Real GDP per worker, and population are taken from the Penn World Tables (last version- 6.3)
Data on trade factor dummies can be found at http://www.cepii.fr/anglaisgraph/bdd/distances.htm
Capital stock and labor force data are from the World Bank’s World Development indicator (WDI) database
The Grubel Llyod is calculated using Uncomtrade data at 3-digit.
RESULTSTable 1: Testing Factor Endowments and the Comparative Advantage in SSA
Country Name 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007Angola K K K K L K L L L K KBenin L L L L L L L L L L LBurkina Faso L L L L L L L L L L .Burundi L L L L L L L L L L .Cameroon K K K K K K K K K L LCape Verde K K K K K K K K K K K1CAF L L L L L L L L L L LChad L L L L L K K L L L LComoros L L L L L L L L L L L2DRC L L L L L L L L L L LCongo, Republic K K K K K K K K K K KCôte d'Ivoire K K K L L L L L L L LEquatorial Guinea K K . K K K K K K K KEthiopia L L L L L L L L L L LGabon K K K K K K K K K K KGambia L L L L L L L L L L LGhana L L L L L L L L L K LGuinea L L L L L L L L L L L
Guinea-Bissau L L L L L L . . . . .
Kenya L L L L L L L L L L LLiberia . . . . L L L L L L LMadagascar L L L L L L L L L L LMalawi L L L L L L L L L L LMali L L L L K L K L L L LMauritius K K K K K K K K K K KMozambique L L L L L L L L L L LNiger L L L L L L L L L . .Rwanda L L L L L L L L L L LSenegal L L L K K K K K K K KSierra Leone L L L L L L L L L L LSouth Africa K K K K K K K K K K KTanzania L L L L L L L L L L LTogo L L L L L L L L L . .Uganda L L L L L L L L L L LZambia L L L L L L L L K K KZimbabwe K L L L L L L L L L L1Central African Republic2Democratic Republic of Congo
Note: The score k indicates the abundance of capital over labor in the country for a particular year, while the score L refers to the abundance of labor of capital
Source: Author's calculation using WDI database.
RESULTS
Table 2: Regional Average Grubel Llyod Index from 1997 to 2007
Mean Minimum MaximumEast and South Asia 0.12 0.00 0.28Europe and North America 0.24 0.00 0.43Latin America and Caribbean 0.06 0.00 0.16Middle East and North Africa 0.06 0.00 0.17Sub-Saharan Africa 0.02 0.00 0.11
Source: Author's calculation using UNCOMTRADE data.
RESULTSTable 3: Statistics on SSA Countries' Trade in Differentiated Goods from 1997-2007
Reporter Name Import Value (Million $U.S.) Export Value (Million $U.S.) Regional Share (percentage) 2GliSouth Africa 42781.6 6502.3 47.16 0.027Kenya 3107.8 1650.9 4.55 0.023Zimbabwe 1153.0 3556.7 4.51 0.031Mozambique 246.0 4112.8 4.17 0.027Nigeria 644.9 3177.5 3.66 0.029Côte d'Ivoire 3090.1 679.0 3.61 0.027Ghana 609.0 3034.7 3.49 0.027Tanzania 475.8 2448.3 2.80 0.025Burkina Faso 309.8 2347.3 2.54 0.026Mali 73.7 2440.0 2.41 0.026Malawi 366.4 2073.4 2.33 0.027Mauritius 906.0 1263.2 2.08 0.023Senegal 1394.0 756.2 2.06 0.023Togo 1024.2 1103.5 2.04 0.029Uganda 137.8 1584.3 1.65 0.021Botswana 993.6 620.8 1.54 0.033Benin 652.1 911.7 1.50 0.027Madagascar 129.3 1249.1 1.32 0.021Cameroon 447.1 819.2 1.21 0.025Guinea 38.9 745.3 0.75 0.022Gabon 126.5 640.5 0.73 0.022Niger 92.2 504.1 0.57 0.024Namibia 457.8 58.6 0.49 0.031Rwanda 20.9 470.7 0.47 0.025Ethiopia 28.2 416.8 0.43 0.024Seychelles 37.1 380.4 0.40 0.022Gambia 32.5 383.3 0.40 0.022Burundi 16.2 306.1 0.31 0.023Sierra Leone 21.7 239.0 0.25 0.024Guinea-Bissau 28.8 173.2 0.19 0.0221CAF 4.5 145.3 0.14 0.020Comoros 3.5 119.8 0.12 0.021Eritrea 18.2 41.1 0.06 0.024Cape Verde 14.3 38.3 0.05 0.022São Tomé and Príncipe 7.6 10.3 0.02 0.0261Central African Republic2The Grubel Llyod index (Gli) takes the maximum value of 1 for intensive intra industrial trade (importvalue = expport value),the minimum value of the Gli is 0 (in case of only import or export). Lower Gli means less intra industrial trade flows.
Source: Author's calculation using UNCOMTRADE data.
RESULTSTable 6: Estimation of Equation (4) using the Hausman- Taylor Methodology
Variables Asia EU_NAM LAC MENA SSAHTaylor HTaylor HTaylor HTaylor HTaylor
Y i Y j /Y r 0.339*** 0.153 0.050*** 0.042*** 0.041***(0.028) (0.238) (0.016) (0.004) (0.013)
D ij -4.108* -2.983** 0.004 -0.049 -0.033***(2.371) (1.252) (0.046) (0.046) (0.012)
Coli -22.835*** -13.077*** -0.532 0.006
(7.329) (2.391) (0.396) (0.078)
LL i 12.559*** -4.139 -0.191 0.079***(4.281) (2.708) (0.193) (0.013)
contigij -20.833 10.166 0.520** -0.278 -0.118**
(15.681) (7.713) (0.213) (0.215) (0.056)
CLij 21.626*** 16.015*** -0.042 0.479*** 0.031
(7.522) (4.931) (0.158) (0.104) (0.021)Constant 29.273 23.010** 0.010 0.026 0.225**
(19.973) (9.626) (0.370) (0.397) (0.097)
Observations 6,170 9,900 6,339 2,907 12,135Number of groups 606 900 631 273 1,190Wald chi2(31)= 13564.94 Wald chi2(35)= 3409.09 Wald chi2(31)= 2678.7 Wald chi2(21)= 1857.51 Wald chi2(41)= 8938.35prob> chi2= 0.0000 prob> chi2= 0.0000 prob> chi2= 0.0000 prob> chi2= 0.0000 prob> chi2= 0.0000
Note: ***, **, and * represent respectively 99, 95, and 90 percent significance. The heteroscedasticity- consistent standard errors are in parentheses.
CONCLUDING REMARKS
Bilateral trade flows are low within SSA compare to that of other regions due to:
Lack of comparative advantage in production across countries in SSA
Similar endowments in factors of production across countries within SSA
Homogeneity of traded goods
Less product differentiation
SUGGESTIONS
SSA countries might want to increase efforts towards accessing developed markets
Gain the “know-how” from interacting with mature markets
Benefit from their comparative advantage over industrialized countries
Use new technologies for industrialization and differentiate their products in many varieties.
THANK YOU FOR YOUR ATTENTION
YOUR COMMENTS ARE VERY WELCOME!