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MENA’s Export Superstars
- 1. MENA’s Export Superstars Caroline Freund March 2014
- 2. Motivation: Extreme Lumpiness in Exporter Data No. of firms MedianSS/ MedianNSS AverageSS/ AverageNSS SS Share SS Man. Share Average top 1% 55 1459 164 53 54 Median top 1% 28 1195 108 53 52 Average 1 32458 586 14 17 Median 1 8298 258 11 12 Average 10 7011 283 39 42 Median 10 2171 138 36 41
- 3. Exporter Concentration Increasing in Stage of Development ALB BELBFA BGD BGR BRA BWA CHL CMR COL CRI DOM ECU EGY ESP EST GTM IRN JOR KEN KHM LAO LBN MAR MEX MKDMLI MUS MWI NER NIC NORNZL PAK PER SEN SLV SWE TZA UGA YEM ZAF .2.4.6.8 1 ShareTop1% 6 7 8 9 10 11 Ln GDPpc Share of Top 1% of Exporters - lnGDPpc
- 4. 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?
- 5. 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?
- 6. 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.
- 7. I. Data and Superstars Characteristics
- 8. Data used for this paper: Exporter-level information on non-oil exports for 32 countries for period 2004- 2010
- 9. Exports are Defined by a Few Big Firms All countries MENA (blue) vs. Non-MENA (red) 012345 16 17 18 19 20 21 Ln(size exporter 2008) 012345 lnr 16 17 18 19 20 21 Ln(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)
- 10. 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 Median MENA 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.
- 11. II. Superstars’ role in export growth and diversification in MENA
- 12. 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)
- 13. 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
- 14. III. Superstars and Sectoral Export Patterns
- 15. Variation in Sectoral Export Pattern from Superstars 0 10 20 30 40 50 60 70 80 Top 1% Top1 Top10 MENA OTHERS
- 16. Superstars Contribution to Comparative Advantage 0 0.05 0.1 0.15 0.2 Comparative Advantage Sectors MENA OTHERS 0 0.2 0.4 0.6 0.8 1 1.2 Superstars Driven Comparative Advantage MENA OTHERS
- 18. 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.
- 19. 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
- 20. One Firm Can Change Comparative Advantage Costa Rica Morocco Electrical Machinery Misc. Paper Electrical Machinery Reversal year 2005 2006 2008 2005 Revealed Comparative Advantage RCA start 0.45 0.44 0.55 0.81 RCA at Reversal 1.27 1.08 1.13 1.01 RCA end 1.24 1.04 1.13 1.09 Revealed Comparative Advantage, excluding the top firm RCA start 0.45 0.32 0.32 0.39 RCA at Reversal 0.63 0.67 0.49 0.66 RCA end 0.49 0.75 0.49 0.88 Top Firm Export share at start 0.01 0.29 0.43 0.55 Export share at reversal 0.56 0.41 0.57 0.39 Export share end 0.65 0.30 0.57 0.22
- 21. 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.
- 22. 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