Exports and growth in island economies
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Transcript Exports and growth in island economies
Exports & growth in island
economies
Times series cross-sectional analysis
Naren Prasad
ILO
Plan
•
•
•
•
•
Aim
Conceptual framework & some statistics
Econometric models and estimation
Results
Conclusions
Questions
• Is export-led growth hypothesis valid in
SIC?
• If yes, which kind of exports? If no why?
• Small islands are often asked to specialize
in services, esp. tourism. How relevant is
this argument?
Conceptual & Theoretical Framework
• Exports leads growth is as old as Smith &
Ricardo
– Increase in productivity, competitiveness,
technological advancement, increased foreign
exchange, better allocation of resources,
creation of employment……
Growth in island economies
BAR
BLZ
CAV
COM
CYP
DOM
FJI
GRD
GUY
KIR
KIT
LUC
MLV
MTA
MUS
SAM
SAO
SEY
SOL
SUR
TON
TRI
VAN
VIN
0
10 20
-20-10
0
10 20
-20-10
0
10 20
-20-10
0
10 20
-20-10
0
10 20
ATG
-20-10
Growth
Some Descriptive statistics
1985
1990
1995
2000
1985
1990
1995
2000
1985
1990
1995
YEAR
Graphs by Code
2000
1985
1990
1995
2000
1985
1990
1995
2000
Exports of Goods and Services
BAR
BLZ
CAV
COM
CYP
DOM
FJI
GRD
GUY
KIR
KIT
LUC
MLV
MTA
MUS
SAM
SAO
SEY
SOL
SUR
TON
TRI
VAN
VIN
1416182022
1416182022
1416182022
1416182022
1416182022
ATG
1985
1990
1995
2000
1985
1990
1995
2000
1985
1990
1995
2000
1985
1990
1995
2000
YEAR
SERVICE
Graphs by Code
MERCANDISE
1985
1990
1995
2000
Imports & exports of merchandise
BAR
BLZ
CAV
COM
CYP
DOM
FJI
GRD
GUY
KIR
KIT
LUC
MLV
MTA
MUS
SAM
SAO
SEY
SOL
SUR
TON
TRI
VAN
VIN
1416182022
1416182022
1416182022
1416182022
1416182022
ATG
1985
1990
1995
2000
1985
1990
1995
2000
1985
1990
1995
2000
1985
1990
1995
2000
YEAR
IMPORT
Graphs by Code
MERCANDISE
1985
1990
1995
2000
8
Economic growth and growth of merchandise exports
6
Mlv
Mus
Blz
Cyp
Sam
Luc
4
Kit
Com
Grd
Atg
Mta
Vin
Fji
Guy
Dom Sey
2
Sao
Ton
Van
Bar
Cap
Tri
0
Sol
-5
0
5
10
Growth of merchandise exports %
15
8
Economic growth and growth of service exports
6
Mlv
Mus
Blz
Kit
Mta
Sur
Atg
Com
Cyp
Sam
4
LucGrd
Vin
Fji
Kir
2
Dom
Sao
Sey
Van
Bar
Sol
0
Tri
5
10
15
Growth of Service exports %
20
ATG
BAR
BLZ
CAV
COM
CYP
DOM
FJI
GRD
GUY
KIR
KIT
LUC
MLV
MTA
MUS
SAM
SAO
SEY
SOL
SUR
TON
TRI
VAN
VIN
0
10000
15000
5000
0
10000
15000
5000
0
10000
15000
5000
0
10000
15000
5000
0
10000
15000
5000
GDP per capita
1985
1990
1995
2000
1985
1990
1995
2000
1985
1990
1995
YEAR
Graphs by Code
2000
1985
1990
1995
2000
1985
1990
1995
2000
Model & Estimation
Traditional Approach
yit 0 1 Lit 2 K it 3 X it it
New Growth Theory
yit 0 1 yit 1 2 yit0 3 H it0 Z it it
Where
Z it 1 K it 2 Lit 3Tit 4 X it
Our equations
yit 0 1 Lit 2 K it 3 X it it
(1)
yit 0 1 Lit 2 K it 3 XM it 4 XSit it
yit 0 1 yit 1 2 Lit 3 K it 4 XM it 5 XSit it
(2)
(3)
Model specification
yit xit it
it et ci it
Affects all observation
at time t
Country effect
Error term (omitted variables,
measurement error)
Data
• 1985-2002 for 25 SIC
– Cross sectional time series
• Sources
– WDI 2004, UNCTAD Handbook of Statistics,
UN Statistical Yearbook, UNIDO statistics
Method of estimation
• OLS FE
•
ci
are eliminated, no time-constant variables
allowed. Additional problems of heteroskedacity in
and serial correlation.
• GLS
• To control for country unobservables
• To correct for heteroskedasticity across countries &
residual serial correlation
• Time dummies capture contemporaneous
correlation across countries
• GMM
• Good in dynamic equations, but c i are eliminated
• Use lagged variables as IV
it
Specification & Diagnostic tests
• Serial correlation
• We find that the error terms are correlated
• Heteroskedasticity
• We reject the homoskedasticity situation
• Unit Roots & cointegration
• We find that the series have unit root (nonstationary) and cointegrated
• Endogeneity
Income levels
• World Bank’s definition
– Low (7), Middle (14), High (4) income
countries
• Alternative definition
– Low <US$2,000 (11)
– Middle between $2,001 – 5,000 (8)
– High >$5,001 (6)
• Putting High & Middle together in
opposition to Low income
OLS Estimation
ALL
HIC
MIC
LIC
0.079
(5.61)***
0.003
(0.29)
0.041
(4.26)***
-0.013
(0.24)
0.222
(2.66)**
0.012
(0.61)
0.092
6.07)***
0.007
(0.58)
0.061
(5.23)***
0.075
(1.64)
-0.017
(0.80)
0.021
(0.84)
0.194
(11.47)***
0.074
(3.88)***
0.088
(6.00)***
0.077
(0.70)
0.003
(0.01)
0.178
(2.31)**
0.242
(9.23)***
0.061
(2.06)**
0.073
(3.79)***
0.166
(6.22)***
0.009
(0.32)
0.158
(4.29)***
0.004
(0.36)
0.042
(4.28)***
0.204
(2.47)**
0.022
(1.01)
0.011
(0.81)
0.064
(5.36)***
-0.015
(0.68)
0.023
(0.92)
-0.007
(0.70)
0.035
(4.80)***
0.250
(2.68)**
-0.033
(0.81)
0.003
(0.21)
0.036
(4.35)***
-0.040
(1.71)*
0.078
(2.88)***
OLS Static
Growth
X
XS
XM
Values
X
XS
XM
OLS Dynamic
Growth
XS
XM
Values
XS
XM
GLS Estimation ALL
HIC
MIC
LIC
0.063
(6.29)***
0.007
(1.09)
0.027
(4.29)***
-0.011
(0.31)
0.185
(4.07)***
0.019
(1.64)
0.070
(6.05)***
0.002
(0.26)
0.052
(5.75)***
0.076
(2.82)***
0.017
(1.11)
0.016
(1.14)
0.137
(9.87)***
0.083
(5.61)***
0.062
(5.53)***
0.107
(1.83)*
0.166
(1.41)
0.118
(3.04)***
0.133
(9.04)***
0.025
(1.53)
0.069
(6.32)***
0.105
(3.97)***
-0.001
(0.03)
0.079
(3.44)***
0.006
(1.06)
0.028
(4.39)***
0.209
(4.60)***
0.021
(1.81)*
0.004
(0.45)
0.057
(5.98)***
0.017
(1.06)
0.017
(1.23)
-0.005
(0.59)
0.038
(6.57)***
0.226
(4.53)***
-0.022
(0.99)
0.004
(0.47)
0.049
(7.41)***
-0.049
(2.97)***
0.073
(3.90)***
GLS Static
Growth
X
XS
XM
Values
X
XS
XM
GLS dynamic
Growth
XS
XM
Values
XS
XM
GMM estimation
ALL
HIC
MIC
LIC
X
0.074
(4.75)***
XS -0.014
(1.29)
XM 0.034
(3.19)***
-0.011
(0.19)
0.204
(2.55)**
0.022
(1.05)
0.086
(5.44)***
0.005
(0.33))
0.051
(3.98)***
0.103
(2.01)**
-0.040
(1.86)*
-0.040
(0.71)
X
0.061
(1.01)
0.250
(2.67)***
-0.033
(0.81)
0.115
(5.72)***
0.021
(1.09)
0.070
(4.99)***
0.045
(1.89)*
-0.051
(2.32)**
0.049
(1.97)**
GMM
Growth
Values
0.085
(5.51)***
XS -0.012
(0.86)
XM 0.042
(3.67)***
Summary results
• Exports in general (G&S) does have positive and
significant impact on GDP growth in our sample
as a whole, but it is inconclusive in HIC
• Why?
• Exports of goods have positive and significant
impact in our sample as a whole. However, it
seems to have more impact in MIC and LIC
compared to HIC
• Why? HIC are more service-based economies
• The impact of service exports is mixed in our
sample as a whole. In HIC it tends to have
positive and significant impact on growth, while it
tends to have negative impact on growth in LIC
(nothing can be said for MIC)
• Why?
Why negative impact of service in LIC?
• Theoretically, service exports earnings help in
economic development
– by financing imports of capital goods necessary for the
growth of the manufacturing sector
• Requires high degree of linkage between service
and other economic sectors
• In the case of tourism for example, we have the
income multiplier to measure this linkage
Tourism income multiplier
Kiribati
0.37
Seychelles
0.88-1.03
Samoa
0.39-0.66
Cyprus
1.14
Tonga
0.42
Egypt
1.23
Vanuatu
0.56-0.80
Ireland
1.72
Fiji
0.69-0.72
United Kingdom 1.73
Antigua
0.88
Turkey
Mauritius
0.96
Source: UN 1999
1.96
High degree of Leakages
Leakage arise from:
• imports of materials and
equipment for construction;
• imports of consumer goods,
(food & drinks);
• repatriation of profits earned by
foreign investors;
• overseas promotional
expenditures
• amortization of external debt
incurred in the development of
hotels and resorts.
Fiji
56
St. Lucia
45
Mauritius
43
Seychelles 30
Antigua
Source: UN 1996
25
Policy implications
• Since exports of merchandise doesn’t
have much impact in HIC, should they
continue to develop their service
economy?
• And should LIC put more emphasis on
services, or should they try to develop
their traditional export sector? Should they
be building their local economic capacity?
• And what about the MIC?