Transcript Les firmes dans la mondialisation

Price versus Quality
competitiveness
The triggers of competitiveness
National Bank of Belgium
December 6th 2011
Matthieu Crozet
Introduction
 Carlo Altomonte and Gianmarco Ottaviano
shown that:
 Firm-level export performance is the key determinant
of competitiveness
 Exporting is not a commonplace activity
 Only a few firms export
 About 15 to 19% of manufacturing firms
 No more than 2% of producers of business services
(French data)
Introduction
 Why exporting is so difficult?
 Firms clearly identify 4 main determinants of export
performances
EFIGE SURVEY
(16,000 firms in seven
different European
countries)
- Lower costs (21%)
- Improve quality (20%)
- Broaden product range
(18%)
- Expand distribution
network (16%)
Introduction
 Firms consider that lower cost is the main
determinant of competitiveness
 But non-price determinants of foreign demand
(quality and product range) is also very important
 This talk:
 Discusses the determinants of firm-level export
performances within a country and industry
 Shows some facts in order to assess the relative
importance of prices and quality competitiveness
Road map
1. Lower cost, R&D and export performances
2. Quality and export performances
3. A simple method to determine whether quality or
price competition drives the selection of firms
across export markets
1. Lower cost
 Firms report that lower cost is one of the main
determinants of competitiveness
 However, all firms in a given country and industry
face the same factor supply conditions.
 Then, lowering cost, within a country/industry
might be two things:
 A better production technology, which is related to
R&D
 A more efficient input-mix (higher skill or capital
intensity)
1. Lower cost - R&D
 EFIGE Survey
Internationalized
firms have a
higher propensity
to innovate
2/3 of
internationalised
firms export
versus only 1/3
for noninternationalizaed
ones
Share of firms doing R&D – Berthou and Hugot (CEPII – EFIGE)
Innovation and export performances
 EFIGE Survey
Share of firms that carried out an innovation over the period 2007-2009
Berthou and Hugot (CEPII – EFIGE)
Innovation and export performances
 EFIGE Survey
Bigger, more
productive and old
firms are more
likely to export
So as firms
belonging to an
international group.
Firms that carried
out innovation in
the past are more
likely to export
… But the effect is 3
times larger for
product innovations
Berthou and Hugot (CEPII – EFIGE)
Innovation and export performances
 EFIGE Survey
… and firms that
carried out process
innovation export a
smaller share of
their turnover
afterwards
Berthou and Hugot (CEPII – EFIGE)
1. Lower cost - R&D
 This result is confirmed by Cassiman et al. (IJIO,
2010)
 Large panel of small Spanish firms
1. Lower cost: R&D
 Exporters are more productive
Cassiman et al. (IJIO, 2010)
1. Lower cost: R&D
 But, strangely, process innovation does not
improve TFP
 Econometric results show that product innovation have
much more import on exports than process innovation
Cassiman et al. (IJIO, 2010)
1. Lower cost - R&D
 These findings suggest that R&D is important
for improving export performances…
 … not really because R&D lowers the
production cost…
 … but more probably because R&D changes
the products the firm supplies:
 Improves the quality
 Creates new products
2. Quality and internationalization
 EFIGE Survey
61% of noninternationalized
French firms have
never certificated
their product
… only 43% of
internationalized
Quality certification over the reference year (2008)
Berthou and Hugot (CEPII – EFIGE)
2. Quality and export performance –
the example of Champagne
 In most cases, it is not possible to have reliable
data on firm-level quality of the products
 But it is possible for some kinds of goods
 e.g. Wines, where experts (like Parker) evaluate
explicitly the quality of each product
2. Quality and export performance –
the example of Champagne
Producers of higher quality Champagne
are more likely to export
Crozet, Head and Mayer (2011)
2. Quality and export performance –
the example of Champagne
Producers of higher quality Champagne
Export to more destinations
Crozet, Head and Mayer (2011)
2. Quality and export performance –
the example of Champagne
Producers of higher quality Champagne
charge higher prices
Crozet, Head and Mayer (2011)
2. Quality and export performances
 Other evidences on such a positive relationship
between prices and export performances:
 Iacovone and Javorcik (2010): Mexican firms that
export a variety obtain a price premium for their
domestic sales of this variety… and price increases two
years before the firm starts to export.
 Manova and Zhang (2011): Chinese exporters that
charge higher prices export more, to more destinations
 Does it means that quality is the main
determinant of export performances?
 Is lower price not important at all?
 … Probably not...
Let ’s consider Champagne again
But, even in this very specific industry, quality cannot
explain much of the heterogeneity of firm-level export
performances
Crozet, Head and Mayer (2011)
3. Price versus quality sorting
 Baldwin and Harrigan (2011) and Baldwin and
Ito (2008) propose a simple method to classify
trade flows according to the nature of the
competitiveness that prevails
 = determine, for each exporting country and
industry whether firms’ relative performance
abroad is mainly driven by lower prices or higher
quality
3. Price versus quality sorting
Theoretical intuition
 Case 1. Heterogeneity in terms of productivity (Melitz, 2003)
 Firms that are able to charge a lower price are more efficient
 They have a higher probability to export
 When the market
becomes more
difficult (more
distant, smaller…),
the most
expensive firms
wipe out.
 This extensive
margin effect
involves that 
country-level export
price decreases with
the “difficulty” of
the market
3. Price versus quality sorting
Theoretical intuition
 Case 2. Heterogeneity in terms of quality (B&H, 2011)
 Firms able to charge a produce a higher quality are more efficient
 They have a higher probability to export
 When the market
becomes more
difficult (more
distant, smaller…),
the least
expensive firms
wipe out.
 This extensive
margin effect
involves that 
country-level export
price increases with
the “difficulty” of
the market
3. Price versus quality sorting
Theoretical intuition
 Case 3. Mixed model
 Both productivity and quality explain firms’ performances
Price
competitiveness
 When
the market
should
prevail in
countrybecomes
more
industry
pairs(more
where firms
difficult
are specialized
in high
distant, smaller…),
quality
varieties
the
most
expensive firms
Quality
competitiveness
AND
the lowest
should
prevailfirm
in countryquality
wipe
industry
outpairs where firms
are specialized in low
quality varieties
3. Price versus quality sorting
 Crozet, Hatte, Zignago:
 Use a worldwide bilateral trade database at the
product level (BACI-CEPII)
 50 exporting countries ; 2,500 manufacturing products ; = 90% of
world trade
 For each pair of exporting country and industry,
we estimate the relationship between the
average export price by destination and the
“difficulty” of the destination market
 We obtain 95,670 estimated coefficients
 Positive coefficient = quality competitiveness
 Negative coefficient = price competitiveness
3. Price versus quality sorting
 1. We first confirm that, on average, richer countries
export more expensive goods
3. Price versus quality sorting
 2. Quality sorting is not really predominant in rich countries
3. Price versus quality sorting
 2. Quality sorting is not really predominant in rich countries
3. Price versus quality sorting
 3. But quality sorting prevails in country/industry pairs
producing at relatively high price, on average (and vice versa)
3. Price versus quality sorting
 In a nutshell:
 In an industry which is specialized in high quality
varieties, firms that have the ability to produce at a
relatively low price have greater export performances
(are more likely to export to more destinations)
 In an industry which is specialized in low quality
varieties, firms that have the ability to produce a
relatively high quality have greater export
performances (are more likely to export to more
destinations)