Download Trade Diversification in Central Asia

The Gravity Approach for
Trade Diversification in
Central Asia
MAENO Takaaki, Nihon University
Workshop on Economic development of New Silk Road
26 – 27 August, 2011
Motivations
• Two main motivations
– It is to reveal an important characteristics of trade
structure for Central Asian countries that locate at the
geographically middle of the new silk road.
– It is to clarify the impact of trade costs on trade flows
for landlocked countries through measuring trade costs
and estimating the determinants of them. And also, we
will give some implications of economic development for
countries on new silk road.
• We focus on the trade structure of Central Asian
countries.
Outline
１．Introduction
２．Being Landlocked and Trade Cost
３．An Analysis of Trade Structure of Central
Asia
４．Panel Data Analysis
５．Conclusion
the Caucasus region
１．Introduction
• Since the late 1980s, MNEs in the developed
countries, including Japanese firms, expands their
business overseas, and East Asian countries have
achieved high economic growth through production
process sharing.
• Decreasing Trade Costs
– One of the main reasons for trade expansion in East
Asia is due to decreasing in trade costs
• What about the trade structure of Central Asian
countries?
２．Being landlocked and Trade costs(1)
• Taking the concept of “Firm heterogeneity” into international
trade theory, it is becoming empirically more important to
analyze many kinds of trade costs as one of the factors to disturb
trade.
– Tariff, Distance, Remoteness, Being Landlocked, Institution, Time,
Infrastructure, Language, etc.
• Many countries are facing many trade costs, but “Being
landlocked” is one of the largest trade costs .
• Early Studies
•
–
•
Kurmanalieva (2008)
Focusing on the trade pattern of Kyrgyzstan, he empirically explains that the traditional trade
theory and even the intra-industry trade theory cannot explain the trade structure in
Kyrgyzstan
Iwata, Kato, Shibasaki (2010)
–
•
They analyze the relations between transport costs and economic growth in Mekong
regions
Behar&Venables (2010)
–
They test and explain the geographical factors, being landlocked, seriously matters
for trade.
2.Being Landlocked and Trade cost(2)
• Why do landlocked countries/regions
face higher trade costs than other nonlandlocked countries/regions?
– 5 countries in Central Asia are landlocked
countries, so they export/import via the
third country.
– Their potential trade cost is relatively
higher than coastal countries.
2.Being Landlocked and Trade cost(3)
• Coulibaly & Fontagné (2004) model
– They decompose distance factors and introduce the third
country effects into trade model.
① Regional context
1.
2.
3.
4.
A border factor（which can be proxied by the number of borders
to be crossed by the shipped good）
A distance factor（which can be proxied by the road distance
between the two trade countries）
A transit factor（which can be approximated by the road
distancefrom the first border to the last border crossed by the
imported good）
An infrastructure factor（which can be estimated by the
presence of paved roads between the two trading partners）
② Extra-regional context
1.
2.
Extra-regional distance（to be crossed the imported good before
reaching the developing region）
Inland distance（Distance to be crossed by imported good
within the developing region）
2.Being Landlocked and Trade cost（4）
Ｎｏｔｅ： Coulibaly & Fontagné (2004)
2.Being Landlocked and Trade cost（5）
３． An Analysis of Trade
Structure of Central Asia （１）
• ＲＣＡ
• Export Similarity Index
• Trade Decomposition
3.1 ＲＣＡ
• Compare comparative advantages taking into
account of the characteristics of traded products.
RCAim,t 
–
–
–
–
–
–
EX ik,t EX iTotal
,t
EX Wk ,t EX WTotal
,t
EX : export value
i : exporter
m : a characteristic of products based on BEC
k : traded goods
W : world
t : period
13
ＲＣＡ：Primary Goods
Primary goods
BEC
111
21
31
Average
BEC
111
21
31
Average
BEC
111
21
31
Average
Kazakhstan
1997
2007
5.174
8.365
7.438
2.879
12.542
6.264
8.384
5.836
Japan
1997
2007
0.015
0.029
0.197
0.264
0.004
0.035
0.072
0.109
Malaysia
1997
2007
1.616
0.539
1.007
0.730
0.053
0.131
0.892
0.467
Kyrgyzstan
1997
2007
3.642
1.007
64.200
65.407
0.005
0.093
22.616
22.169
China
1997
2007
1.834
6.198
1.181
0.734
0.528
0.220
1.181
2.384
Philippines
1997
2007
1.804
1.480
1.474
0.815
0.022
0.232
1.100
0.842
Tajikistan
1997
2007
17.889
9.442
36.628
67.034
n.a.
0.013
27.258
25.496
Rep. of Korea
1997
2007
0.332
0.031
0.316
0.211
0.087
0.020
0.245
0.087
Thailand
1997
2007
2.612
0.639
1.123
1.294
0.048
0.016
1.261
0.649
Turkmenistan
1997
2007
n.a.
0.001
42.081
13.139
22.828
41.812
32.455
18.317
Singapore
1997
2007
0.137
0.119
0.357
0.235
0.164
0.021
0.219
0.125
Uzbekistan
1997
2007
0.325
2.242
12.758
25.819
0.030
4.864
4.371
10.975
Indonesia
1997
2007
0.931
2.696
1.225
2.233
2.586
5.959
1.581
3.629
ＲＣＡ：Parts & Components
Parts & Components
Kazakhstan
BEC
1997
2007
42
0.516
0.172
53
0.291
0.072
Average
0.404
0.122
Japan
BEC
1997
2007
42
1.614
1.749
53
1.541
1.669
Average
1.578
1.709
Malaysia
BEC
1997
2007
42
0.794
0.824
53
0.370
0.519
Average
0.582
0.672
Kyrgyzstan
1997
2007
1.445
0.866
1.787
1.263
1.616
1.065
China
1997
2007
0.452
0.981
0.612
0.961
0.532
0.971
Philippines
1997
2007
0.711
0.866
0.359
0.594
0.535
0.730
Tajikistan
1997
2007
0.797
0.095
0.367
0.049
0.582
0.072
Rep. of Korea
1997
2007
0.873
0.982
0.982
0.933
0.928
0.957
Thailand
1997
2007
0.539
0.916
0.688
1.311
0.614
1.113
Turkmenistan
1997
2007
0.333
0.016
0.051
0.046
0.192
0.031
Singapore
1997
2007
1.025
1.108
0.431
0.418
0.728
0.763
Uzbekistan
1997
2007
0.121
0.072
0.475
0.225
0.298
0.148
Indonesia
1997
2007
0.202
0.721
0.494
0.814
0.348
0.767
3.1 ＲＣＡ（２）
• East Asian countries have comparative
advantages in P&C that is relatively
higher-value added.
• Central Asian countries have
comparative advantage in primary good
that is relatively low-value added.
3.2 Export Similarity Index(1)
• Export Similarity Index
ESI   EX
i
i
ac
i
i
EX ac
 EX bc

2
• It measures the difference in the export pattern of
countries a and b to market c, and it assesses the intensity
of competition in exports between various countries to the
third market. (Finger & Kreinin,1979, Lee, 1997)
– If the commodity distributions of the exports of a and b are identical,
then the index can take on a value of 0, and it means the trade
structures for country a and b are quite similar and they face more
competition at the market in country c.
3.2 Export Similarity Index (2)
Central Asia (5 Countries) Year
1996
Kazakhstan-Kyrgyzstan
2007
Japan
0.98
0.97
Korea
1.00
0.97
China
0.65
0.92
USA
0.79
0.98
France
0.84
1.00
Germany
0.63
0.97
Italy
0.98
0.99
UK
0.98
0.94
Russia
0.86
0.90
Kazakhstan-Tajikistan
1996
2007
1.00
0.98
0.98
1.00
0.78
0.98
0.94
0.96
0.88
0.99
0.96
0.99
0.00
0.99
1.00
1.00
0.93
0.95
Kazakhstan-Turkmenistan
1996
2007
1.00
1.00
0.98
1.00
0.75
0.95
0.96
0.80
0.88
n.a.
0.96
n.a.
0.95
n.a.
0.99
n.a.
0.91
0.92
Kazakhstan-Uzbekistan
1996
2007
0.99
1.00
0.96
1.00
0.80
0.92
0.86
0.87
0.86
0.96
0.91
0.97
0.87
0.84
0.47
0.86
0.89
0.90
Kyrgyzstan-Tajikistan
1996
2007
0.99
0.97
1.00
1.00
0.67
0.90
0.99
0.95
0.81
1.00
0.98
0.94
0.85
0.54
1.00
1.00
0.42
0.54
Kyrgyzstan-Turkmenistan
1996
2007
1.00
1.00
1.00
0.98
0.77
0.90
0.97
0.94
0.81
n.a.
0.98
n.a.
0.86
n.a.
0.88
n.a.
0.86
0.83
Kyrgyzstan-Uzbekistan
1996
2007
1.00
1.00
1.00
0.94
0.85
0.94
0.99
0.99
0.81
1.00
0.93
0.87
0.86
0.85
1.00
0.99
0.53
0.61
Tajikistan-Turkmenistan
1996
2007
0.93
1.00
0.79
0.97
0.13
0.91
0.99
0.97
0.10
n.a.
0.59
n.a.
0.23
n.a.
1.00
n.a.
0.88
0.75
Tajikistan-Uzbekistan
1996
2007
0.93
0.99
0.81
0.97
0.50
0.94
0.87
0.98
0.07
0.97
0.59
0.90
0.21
0.91
1.00
1.00
0.44
0.61
3.2 Export Similarity Index (3)
ASEAN5
Year
1996
2007
Japan
0.63
0.66
Korea
0.69
0.66
China
0.68
0.50
USA
0.53
0.42
France
0.55
0.74
Germany
0.47
0.39
Italy
0.63
0.73
UK
0.42
0.76
Russia
0.54
0.52
Singapore-Indonesia
1996
2007
0.87
0.82
0.89
0.90
0.88
0.72
0.86
0.83
0.85
0.92
0.87
0.83
0.88
0.86
0.82
0.91
0.92
0.78
Singapore-Philippines
1996
2007
0.56
0.57
0.63
0.46
0.70
0.60
0.66
0.62
0.68
0.75
0.55
0.40
0.67
0.72
0.60
0.76
0.89
0.84
Singapore-Thailand
1996
2007
0.63
0.65
0.70
0.63
0.72
0.50
0.61
0.57
0.75
0.86
0.65
0.61
0.73
0.76
0.58
0.81
0.88
0.72
Malaysia-Indonesia
1996
2007
0.52
0.55
0.50
0.43
0.62
0.59
0.65
0.74
0.67
0.60
0.73
0.70
0.67
0.70
0.75
0.64
0.78
0.54
Malaysia-Philippines
1996
2007
0.61
0.66
0.69
0.69
0.70
0.33
0.37
0.58
0.49
0.41
0.49
0.35
0.64
0.65
0.38
0.64
0.89
0.75
Malaysia-Thailand
1996
2007
0.60
0.59
0.68
0.59
0.65
0.54
0.47
0.48
0.60
0.56
0.52
0.50
0.52
0.58
0.59
0.55
0.83
0.72
Indonesia-Philippines
1996
2007
0.76
0.73
0.88
0.89
0.79
0.76
0.60
0.56
0.54
0.66
0.64
0.77
0.69
0.73
0.77
0.79
0.80
0.74
Indonesia-Thailand
1996
2007
0.74
0.72
0.78
0.80
0.78
0.61
0.54
0.54
0.49
0.57
0.61
0.62
0.67
0.71
0.62
0.63
0.87
0.65
Philippines-Thailand
1996
2007
0.54
0.55
0.73
0.56
0.72
0.63
0.46
0.50
0.56
0.60
0.50
0.56
0.65
0.66
0.67
0.69
0.93
0.76
Singapore-Malaysia
3.2 Export Similarity Index (4)
• For ASEAN5, they face quite higher competition
in the U.S. and EU market in 1996, but they
shift the market to East Asia.
• It is strongly associated with the development of
production fragmentation in East Asia.
• Compared to ASEAN5, there is almost no
international competition in the global market
for Central Asian countries.
•
•
•
•
Their industrial structures are different
They are relatively less advanced in industrial advances
They trade the different characteristics of products
They are facing higher trade costs
3.3 Decomposition of Trade（１）
• Decomposition of export values
– We follow the definition of both extensive and intensive
margins in Hummels(2009).
– Intensive margin: trade volume of products that have already
traded in earlier period
– Extensive margin: trade volume of products that are newly
traded in earlier period
i
i
jkt
TVt
* i
N jkt
extensive
margin
intensive
margin
TVt  N
i
– TV : the aggregated value of export for country i at time t
(from 1996 to 2007).
– N : the number of unique shipments of exported product k to
country j at time t.
– TV/N : the average value per unique shipment.
21
3.3 Decomposition of Trade（2）
• Taking a concept of trade partner
into trade decomposition,,,,
TVt i  N * C *V
»
»
»
»
TV : the aggregated value of export for country i at time t.
N : the number of unique shipments of exported product
at time t.
: average number of trading partner per product
C : average export value per product-partner
V
22
3.3 Decomposition of Trade（3）
Export Value
(million USD)
Number of Traded
Products
Ave. Number of
Ave. Export Value per
Trading Partner per
product-partner
products
Kazakhstan
1996
2007
1430.142 37025.38
1996
981
2007
4968
1996
0.191
2007
0.968
1996
1457841
Kyrgyzstan
105.276
693.5867
296
1778
0.058
0.347
355662.1 390093.8
200.0506 1094.084
486
1324
0.095
0.258
411626.8 826347.5
Turkmenistan 224.2657 6469.532
263
1112
0.051
0.217
852721.3 5817924
Uzbekistan 1559.067 6460.513
456
(Source) Trade data is from UN Comtrade.
3353
0.089
0.653
3419006
Tajikistan
2007
7452773
1926786
3.3 Decomposition of Trade（4）
• Their trade structure have been diversified at
the aggregated level.
• The number of traded products and partners
increases and also the export values per
product and per partner increases.
4. Panel data analysis(1)

Following the definition of both extensive and
intensive margin in Hummels(2009), we use a
simple gravity model as…
ln TVi , j ,t  ln INTi , j ,t  ln EXTi , j ,t   0  1 ln DISTANCEi , j   2 ln H _ GDPi ,t
  3 ln F _ GDPj ,t    4 ln REMOTENESS Trade
  5 ln TARIFF j ,t
j ,t
  6 ln FDI j ,t   7 ln GDPPi ,t  8 ln GDPPj ,t   9 ln INFRA j ,t  ei , j ,t
 i,
j, and t, represent exporter(5 Central
Asian countries), partner countries, time
(from 1996 to 2007), respectively.
25
4. Panel data analysis(2)
• Expected sign
Variables
Expected Sign
Definition
GDP-H
＋
Country i’s GDP share to the World GDP in time t
GDP-F
＋
Country j’s GDP share to the World GDP in time t
DISTANCE
－
Geographical Distance between i and j
REMOTENESS-Trade
＋
Relative distance for country j in time t (weighted by
GDP shere)
Tariff
－
Country j's average tariff rate in time t
FDI
+
Country j's FDI net inflows in time t
GDPP-H
+
Country i’s GDP per capita in time t
GDPP-F
+
Country j’s GDP per capita in time t
Air_Trans
+ or －
Country j’s volume of goods transported by airplain in
time t
Road_Trans
+ or －
Country j’s volume of goods transported by road in time t
Rail_Trans
+ or －
Country j’s volume of goods transported by railway in
time t
Estimation results
TV
N
TV/N
TV
N
TV/N
TV
N
TV/N
TV
N
TV/N
GDP_H
0.605
0.38
0.29
0.789
0.386
0.454
[8.80]*** [14.60]*** [4.86]*** [9.53]*** [12.31]*** [6.34]***
GDP_F
1.008
0.407
0.613
1.068
0.431
0.646
[16.71]*** [17.19]*** [12.42]*** [16.16]*** [16.86]*** [11.77]***
Distance
-2.697
-0.945
-1.748
-2.609
-0.914
-1.687
-2.727
-0.951
-1.762
-2.052
-1.16
-0.839
[-15.99]***[-14.20]***[-12.80]***[-14.74]***[-13.34]***[-11.51]***[-13.04]***[-11.94]***[-10.72]***[-5.04]*** [-6.89]*** [-2.46]**
Remoteness-Trade
-0.14
-0.026
-0.149
-0.117
-0.018
-0.14
-1.763
0.676
-2.515
[-2.12]** [-1.07]
[-2.44]** [-1.67]* [-0.70]
[-2.18]** [-2.23]** [2.06]** [-3.79]***
Tariff
0.19
-0.118
0.286
0.314
-0.035
0.336
0.271
-0.203
0.372
[1.83]*
[-3.01]*** [3.16]*** [2.42]** [-0.71]
[2.99]*** [1.29]
[-2.26]** [1.97]**
FDI
0.227
0.05
0.204
[5.45]*** [3.21]*** [5.50]***
GDPP-H
0.839
0.475
0.397
1.096
0.553
0.563
[7.27]*** [10.91]*** [3.99]*** [6.98]*** [8.32]*** [4.09]***
GDPP-F
0.499
0.3
0.177
0.265
0.251
-0.075
[3.50]*** [5.55]*** [1.51]
[0.99]
[2.23]** [-0.32]
Air_trans
0.131
0.009
0.127
[2.45]** [0.38]
[2.70]***
Road_trans
0.189
0.061
0.151
[2.90]*** [2.16]** [2.56]**
Rail_trans
0.471
0.281
0.185
[5.28]*** [7.63]*** [2.49]**
_cons
-6.839 -10.528
1.824 -13.324 -10.917
-3.562
17.938
1.868
15.673
22.766
-3.131
27.063
[-2.83]*** [-11.34]***[0.89]
[-4.49]*** [-9.63]*** [-1.41]
[7.13]*** [1.96]*
[7.58]*** [4.04]*** [-1.33]
[5.60]***
R-squared
0.42
0.40
0.27
0.42
0.42
0.28
0.23
0.19
0.17
0.32
0.37
0.17
N
3799
3799
3799
2938
2938
2938
2812
2812
2812
1265
1265
1265
* p<0.1, ** p<0.05, *** p<0.01
Interpretation
• We can explain the export of Central Asian countreis through the simple
gravity model
• Market size: GDP, GDPP
– They export relatively larger market and higher income countries.
• Economic Openness：Remoteness, FDI, Tariff
– They export to the relatively higher economic openness
– Some countries which have neighbor countries with a higher volume of trade
(low remoteness) and accept FDI from many other countries have higher
economic openness
• Trade costs：Distance, Infrastructure
– They export to the countries with an improvement of infrastructure.
– Distance is still important factors for trade growth, according to the Coulibaly
& Fontagné (2004)model.
Export share by market
Export share by market
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
East Asia
EU4
USA
Russia
1996
17%
16%
5%
62%
2007
28%
42%
6%
24%
Source: UN Comtrade and WDI
Note：Those share are Based on author’s calculation.
5.Ｃｏｎｃｌｕｓｉｏｎs and future work
• Our studies show that the Central Asian countries have stronger
comparative advantages for primary goods, but comparing to East
Asian countries, they still face lower international competition.
• The gravity model can simply explain the trade diversification for
the Central Asian countries.
• We clarify the negative relations between export and trade costs,
especially infrastructure. So, it is important to decrease trade costs
(ex. improve infrastructure) in order to trade growth and economic
development.
• For the future work, we will measure and estimate some
determinants of trade costs in order to lead the some implications
to decrease trade costs and to achieve economic development for
the related countries.
Cost to export (US$ per container)
2006
Cost(US$)
Rank
Tajikistan
3000
191
Kazakhstan
2730
189
Uzbekistan
2550
187
Kyrgyz Republic
2500
185
2009
Cost(US$)
Tajikistan
3150
Uzbekistan
3100
Kazakhstan
3005
Kyrgyz Republic
3000
Rank
192
191
190
189
Cost to import (US$ per container)
2006
Cost(US$)
Rank
Tajikistan
4500
193
Uzbekistan
4050
191
Kazakhstan
2780
182
Kyrgyz Republic
2450
176
2009
Cost(US$)
Uzbekistan
4600
Tajikistan
4550
Kyrgyz Republic
3250
Kazakhstan
3055
Rank
196
195
186
184
(source) World Bank
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