Decomposing quaterly changes in market shares

What is it about?

In order to pinpoint geographic and sectoral contributions to market shares evolutions, we propose an econometric shift-share decomposition of yoy changes. We apply this methodology to quaterly trade data in values, volumes and prices, starting in 2005, for all countries in the world, at the most disaggregated level (more than 5,000 products). For each quarter, variations for each product/exporter/importer are regressed on fixed effects of products, importers and exporters, enabling the effect of "pure" competitiveness to be isolated by deduction for each exporting country. This "pure" competitiveness effect answers the following question: What would the variations in exports for a country be if the geographic and sectoral structure of its exports would be same as that of its competitors?

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Why is it important?

Over the past two decades, international trade has become a privileged engine of growth for much of the developing world. In the wake of the global crisis, countries must pay close attention to their positioning on the global map of trade and production and become aware of how they fare relative to competitors and to their past export performance. To which extent changes in their market shares are driven by exporter own supply-side capacity as opposed to external or compositional factors, dues to their product and geographical specialization? This paper uses quarterly data, covering all exchanges flows at the product level since 2005, to compute indicators of export performance stripped of compositional effects. The resulting Export Competitiveness Database (ECD) reveals that emerging and developing regions, particularly the Asia and Pacific one, had strongest capacity to gain market shares in the most recent period, with changes reflecting growth in export volumes rather than price developments (once controlled for the composition effects). In contrast, ECD indicators also trace the legacy of the double-dip recession in the euro area, which have turned into negative the geographical effects of the traditional intra-zone specialization, despite the generally positive effects of sectoral structure. These measures of competitiveness correlate to nominal and real effective exchange rates, factors that are commonly perceived as important determinants of a country’s export competitiveness.

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