ramesh phd conference 2012

Export Performance of LandlockedDeveloping Countries

Ramesh Paudel

Panel: Chandra AthukoralaPeter WarrPaul Burke

Crawford PhD Conference 2012Australian National University

November 27, 2012

Ramesh Paudel (Panel: Chandra Athukorala Peter WarrPaul Burke Crawford PhD Conference 2012 Australian National University)Export Performance of Landlocked Developing CountriesNovember 27, 2012 1 / 25

Outline

1 Research Questions

2 Policy and Logistic Contexts

3 Export Performance: Trends and Patterns

4 Determinants: Gravity Modelling Framework

5 Results

6 Conclusions

Research Questions

How landlocked developing countries’ export performance differs fromthat of other developing countries.

What are the determinants of export performance in the LLDCs

Does export performance of African landlocked countries differ fromthat of other LLDCs.

Research Questions

Policy and Logistic Contexts

Conventional wisdom that export performance is aided by economicopenness

Indicators of Openness:

Sachs-Warner Index

Exports or trade to GDP

Tariffs

Sachs-Warner Index

A Country is liberalised when it has,

Non tariff barrier no more than 40%

Average tariff rate no more than 40%

Black market premium on exchange rate no more than 20%

Not export marketing board controlled by government

Not the socialist state

Sachs-Warner Index

Table 1: Sachs-Warner Criteria up to 2009Region/Country year Tariff NTB BM X Board S- StateEAP: Lao PDR - 11.3 na na 0 0Mongolia 1997 4.8 0 0 0 0ECA: Armenia 1995 2.2 0 0 0 0Azerbaijan 1995 4.9 0 0 0 0Belarus - 6.3 na 0 0 0Kazakhstan - 4.4 na na 0 0Kosovo - na na na 0 0Kyrgyz Republic 1994 4.3 0 0 0 0Macedonia, FYR 1994 5.3 0 0 0 0Moldova 1994 2.3 0 0 0 0Serbia - 6.6 na na 0 0Tajikistan 1996 5.3 0 0 0 0Turkmenistan - 1.44 na na 0 0Uzbekistan - 6.6 na 0 0 0LAC: Bolivia 1985 7.5 0 0 0 0Paraguay 1989 7.7 0 0 0 0SA: Afghanistan - 5.5 na 22 0 0Bhutan - 18.0 na 0 0 0Nepal 1991 15 0 0 0 0SSA: Botswana 1979 7.9 0 0 0 0Burkina Faso 1998 11.2 0 0 0 0Burundi 1999 13.2 0 0 0 0CA Republic - 15.5 na 0 1 0Chad 2001 14.1 0 0 0 0Ethiopia 1996 12.6 0 0 0 0Lesotho 2001 15.3 0 0 0 0Malawi 2001 13.1 0 0 0 0Mali 1988 9.8 0 0 0 0Niger 1994 11.1 0 0 0 0Rwanda 2001 12.5 0 0 0 0Swaziland 2001 7 0 0 0 0Uganda 1988 7.7 0 0 0 0Zambia 1993 9.3 0 0 0 0Zimbabwe - 20.3 0 29 0 0

Table 2: Trade to GDP Percent AverageCountries / Region 1995-99 2000-04 2005-10 Average 1995-2010

X/GDP T/GDP X/GDP T/GDP X/GDP T/GDP X/GDP T/GDPEAP 30 84 29 95 33 98 31 93Lao PDR 21 71 17 68 21 81 20 74Mongolia 39 96 42 122 44 115 42 112ECA 35 92 39 103 37 96 37 98Armenia 15 77 19 76 13 62 16 71Azerbaijan 19 77 37 96 58 93 39 89Belarus 44 114 58 137 50 123 51 125Kazakhstan 28 75 43 96 45 88 39 86Kosovo - - - - - 71 - -Kyrgyz Republic 31 87 32 85 34 130 32 103Macedonia, FYR 31 84 32 100 36 113 33 100Moldova 43 122 38 131 29 131 36 128Serbia - 47 15 65 22 82 21 68Tajikistan 65 143 61 151 33 81 52 122Turkmenistan 52 135 69 139 54 102 58 124Uzbekistan 25 51 27 61 34 72 29 62LAC 13 79 18 71 28 91 20 81Bolivia 14 49 18 50 33 74 22 59Paraguay 12 108 18 91 23 107 18 102SA 21 72 13 79 18 81 16 78Afghanistan - - 3 111 4 79 4 90Bhutan 33 86 24 75 42 117 33 93Nepal 9 58 11 50 8 46 10 51SSA 21 63 23 70 25 73 23 67Botswana 47 93 40 83 37 78 41 84Burkina Faso 10 38 8 32 10 37 10 10Burundi 8 27 6 33 6 57 7 35Cen. Af. Republic 15 40 13 36 9 36 12 37Chad 16 50 21 85 50 107 30 83Ethiopia 6 30 6 40 7 45 6 39Lesotho 23 150 47 163 47 161 39 158Malawi 24 66 21 64 20 69 22 66Mali 20 60 24 70 24 66 23 65Niger 15 41 14 42 16 39 15 41Rwanda 4 31 4 34 5 39 4 35Swaziland 57 142 81 191 59 154 65 162Uganda 9 34 8 35 10 50 9 40Zambia 30 67 26 72 36 72 31 71Zimbabwe 30 79 28 72 40 92 33 82

Table 3: Export Policy and Logistic IndicatorsCountries /Region EDBs LPI T2X Doc2x Cost2X Dis2PortEAP Lao PDR 163 2.46 48 9 1860 373Mongolia 89 2.25 46 8 2131 1323ECA Armenia 61 2.52 13 5 1665 337Azerbaijan 69 2.64 38 8 2980 525Belarus 91 2.54 15 9 1772 401Kazakhstan 47 2.83 76 9 3005 2091Kosovo 117 - 17 8 2230 269Kyrgyz Republic 67 2.62 63 8 3010 1917Macedonia, FYR 34 2.77 12 6 1376 178Moldova 99 2.57 32 6 1765 145Serbia 88 2.69 12 6 1398 320Tajikistan 152 2.35 82 11 3350 1370Turkmenistan - 2.49 - - - 414Uzbekistan 164 2.79 71 10 3150 1450LAC Bolivia 147 2.51 19 8 1425 540Paraguay 100 2.75 33 8 1440 803SA Afghanistan 154 2.24 74 10 3545 1081Bhutan 146 2.38 38 8 2230 560Nepal 110 2.2 41 9 1960 641SSA Botswana 52 2.32 28 6 3010 358Burkina Faso 151 2.23 41 10 2412 413.6Burundi 177 2.31 25 9 2747 1129Central African Republic 183 - 54 9 5491 986Chad 182 2.49 75 8 5902 1067Ethiopia 104 2.41 43 7 1760 563Lesotho 142 - 31 8 1680 328Malawi 141 - 41 10 1713 451Mali 148 2.27 26 6 2202 715Niger 172 2.54 59 8 3545 797Rwanda 50 2.04 35 8 3275 1091Swaziland 123 - 18 9 1745 132Uganda 119 2.82 37 7 2780 932Zambia 80 2.28 44 6 2664 849Zimbabwe 168 - 53 8 3280 464Ramesh Paudel (Panel: Chandra Athukorala Peter WarrPaul Burke Crawford PhD Conference 2012 Australian National University)Export Performance of Landlocked Developing CountriesNovember 27, 2012 8 / 25

Export Performance: Trends and Patterns

Determinants: Gravity Modelling Framework

Gravity Modelling Framework

Tinbergen (1962): Trade between 2 countries is determined by somegravitional forces such as exporters and importers GDP and distancebetween them.

Anderson (1979); Bergstrand (1985) and Deardorff (1995)contributed theoretical background

Ln(Xij ,t) = α + β1Ln(GDPi ,t) + β2Ln(GDPj ,t) + β3Ln(DISij)

+ β4(LLOCKi) + β5Ln(RERi ,t) + β6Ln(GDPPCi ,t) + β7Ln(GDPPCj ,t)

+ β8(LANij ,t) + β9(BORij ,t) + β10Ln(RFEi ,t)

+ β11(OPENi ,t) + β12(RTAij ,t) + εij ,t ......... (1)

Model contd.....

X - Real non-oil exports between trading countries, the dep. variable

GDP - Real (GDP), a measure of the economic size (+)

DIS- The distance between the business cities of country i and j (-)

LLOCK - If the exporter is landlocked countries, binary dummy (-)

RER - Real exchange rate (+) (Its domestic currency/US$)

GDPPC - Per capita GDP (+,-)

LAN - Common language, a measure of cultural affinity (+)

BOR - Common boarder of trading countries (+)

OPEN - Openness measured by weighted average tariff rate (-)

RFE - Relative factor endowment (+, -), either H-O or Linder hypothesis

RTA - Regional Trade Agreements (+)

Model contd.....

For Landlocked Developing Countries

Ln(Xij,t) = Υ1 +Υ2Ln(GDPi,t)+Υ3Ln(GDPj,t)+Υ4Ln(DISij,t)+Υ5Ln(RERi,t)

+ Υ6Ln(GDPPCi,t) + Υ7Ln(GDPPCj,t) + Υ8(LANij,t)

+ Υ9(BORij,t) + Υ10(RFEi,t) + Υ11(OPENi,t)

+ Υ12(RTAij,t) + Υ13(AFLLOCKj,t) + εij,t ......... (2)

Where,

AFLLOCK= Binary Dummy for African landlocked country (-/+)

Data Compilation and Sources

Country pair level annual data, non-oil export from 1995-2010

World-Bank (2012)-WDI- real GDP in US$, real GDP and nominalGDP in local currency to calculate the GDP deflator, nominalexchange rate, weighted average tariff rate, and GDPPC

UNCOMTRADE: Exports country to country

CEPII data base: distance, language and border

de Sousa (2012), recently updated RTAs

Econometric Methodology

Most previous studies use OLS, RE and FE methods

OLS is suffered by heterogeneity bias so RE is preffered over OLS, butthe assumption of country specific effects are uncorrelated with allregressor- has been rejected in many studies so FE is preferred overOLS and RE.

One problem for us in FE is main variable of interest is time invariant,can not obtain the coefficient for time invariant variable

Hence, Later Hausman and Taylor (1981) instrumental variable (HT)estimator is used

In this estimation, HT estimator could not pass the normality test

Econometric Methodology Contd.....

Hence, Poisson Pseudo Maximum Likelihood (PPML) developed bySilva and Tenreyro (2006) is applied. PPML deals with hetorogeneity

Some issues with the log linearization and missing data-somecountries data are not available for the dependent variable and resultsare not consistent due to heteroskedasticity in trade data- coefficientsare still unbiased but doubtful t-statistics. In this situation, Silva andTenreyro (2006) PPML is applied, because

Time invariant variable can be estimated

Can deal with missing value , and

Log linearization problem- dependent variable is level not in log.

Results

Table 9:All CountriesDep. Var.: export (log) / export (HT) (PPML)Landlockedness (Dummy) -2.621*** 0.075***

(0.330) (0.000)GDP (log GDPi,t) 1.176*** 0.884***

(0.035) (0.000)Partner’s GDP (log GDPj,t) 1.360*** 0.786***

(0.036) (0.000)Distance (log Dij) -1.418*** -0.527***

(0.040) (0.000)Openness (Tariff Rate %) -0.000 -0.000***

(0.000) (0.000)Relative Factor Endowment -0.081*** 0.016***

(0.008) (0.000)Bilateral RER -0.000** -0.000***

(0.000) (0.000)Per Capita GDP (log) 0.043 -0.174***

(0.035) (0.000)Partner’s per capita GDP (log) 0.166*** 0.002***

(0.037) (0.000)Common Border (Dummy) 0.585*** 0.560***

(0.195) (0.000)Common Language (Dummy) 1.077*** 0.210***

(0.079) (0.000)Regional Trade Agreement 0.154*** 0.356***

(0.016) (0.000)Number of observations 203,556 203,556Number of country pairs 18,133F Statistics 1,150.91Sargan Hansen Statistics 535.41Sargan Hansen P-value 0.000Pseudo R-squared 0.88RESET test p-values 0.25Year Effect Yes Yes

Results

Table 10:All Developing CountriesDependent Variable.: exports (PPML) (PPML) (PPML) (PPML)Landlockedness (Dummy) -0.250*** -0.229*** -0.641*** 6.461***

(0.000) (0.000) (0.000) (0.000)GDP (log GDPi,t) 1.063*** 1.078*** 1.078*** 1.078***

(0.000) (0.000) (0.000) (0.000)Partner’s GDP (log GDPj,t) 0.803*** 0.800*** 0.800*** 0.803***

(0.000) (0.000) (0.000) (0.000)Distance (log Dij) -0.593*** -0.557*** -0.557*** -0.554***

(0.000) (0.000) (0.000) (0.000)Openness (Tariff Rate %) -0.085*** -0.084*** -0.084*** -0.084***

(0.000) (0.000) (0.000) (0.000)Relative Factor Endowment 0.071*** 0.080*** 0.080*** 0.080***

(0.000) (0.000) (0.000) (0.000)Bilateral RER 0.001*** 0.000*** 0.000*** 0.000***

(0.000) (0.000) (0.000) (0.000)Per Capita GDP (log) -0.269*** -0.332*** -0.332*** -0.332***

(0.000) (0.000) (0.000) (0.000)Partner’s per capita GDP (log) 0.046*** 0.030*** 0.030*** 0.031***

(0.000) (0.000) (0.000) (0.000)Common Border (Dummy) 1.118*** 1.040*** 1.040*** 1.041***

(0.000) (0.000) (0.000) (0.000)Common Language (Dummy) 0.798*** 0.806*** 0.806*** 0.807***

(0.000) (0.000) (0.000) (0.000)Regional Trade Agreement 0.315*** 0.315*** 0.312***

(0.000) (0.000) (0.000)llock*gdp 0.018***

(0.000)llock*partgdp -0.246***

(0.000)Number of observations 123,507 123,507 123,507 123,507Pseudo R-squared 0.88 0.88 0.88 0.86RESET test p-values 0.27 0.18 0.29 0.27Year Effect Yes Yes Yes Yes

Results

Table 11: Landlocked Developing CountriesDependent Variable: exports (PPML) (PPML) (PPML) (PPML)GDP (log GDPi,t) 0.682*** 0.814*** 0.674*** 0.801***

(0.000) (0.000) (0.000) (0.000)Partner’s GDP (log GDPj,t) 0.782*** 0.814*** 0.782*** 0.813***

(0.000) (0.000) (0.000) (0.000)Openness (Tariff Rate %) -0.030*** -0.040*** -0.027*** -0.037***

(0.000) (0.000) (0.000) (0.000)Bilateral RER 0.001*** 0.001*** 0.001*** 0.001***

(0.000) (0.000) (0.000) (0.000)Per Capita GDP (log) 0.430*** 0.318*** 0.394*** 0.286***

(0.000) (0.000) (0.000) (0.000)Partner’s per capita GDP (log) -0.220*** -0.218*** 0.061*** 0.043***

(0.000) (0.000) (0.000) (0.000)Distance (log Dij) -0.834*** -0.723*** -0.876*** -0.762***

(0.000) (0.000) (0.000) (0.000)African Landlocked (Dummy) 0.337*** 0.528*** 0.304*** 0.492***

(0.000) (0.000) (0.000) (0.000)Common Border (Dummy) 1.455*** 1.052*** 1.297*** 0.927***

(0.000) (0.000) (0.000) (0.000)Common Language (Dummy) 0.567*** 0.241*** 0.586*** 0.253***

(0.000) (0.000) (0.000) (0.000)Regional Trade Agreement 1.180*** 1.150***

(0.000) (0.000)Relative Factor Endowment -0.243*** -0.225***

(0.000) (0.000)Number of observations 22,409 22,409 22,409 22,409Pseudo R-squared 0.67 0.70 0.68 0.71RESET test p-values 0.28 23.00 0.25 0.29Year Effect Yes Yes Yes Yes

Note: *** , ** and * indicate the significance levels at 1%, 5% and 10% level of significance, the figures in the parenthesis arestandard errors.

Results

Key Points from Empirical Analysis

Landlockedness deters export more to poor countries

Having common language and border increase export but border’srole is more important

RFE- results suggest trade between poor countries is the phenomenonof LLDCs

RER has positive significant role even small magnitude

Having more bilateral and regional trade agreements is morefavourable exports

Results

Conclusions

Landlockedness remains binding constraint- opportunities exist toimprove export performance creating a more trade friendlyenvironment through lowering the tariffs and focusing tradepromotion effort on bilateral trade agreements

Landlockedness matters more to LLDCs compared to rich LC.

RFE-measured by the difference between the per capita income oftrading partners confirm the Linder hypothesis that trade links aremuch stronger among countries with similar income levels.

Conclusions

Conclusions Contd.....

LLDCs have many products line that have revealed comparativeadvantage. Mostly the product lines are high value light productssuch as processed foods, garments-textiles, tea and coffee.

Distance-related trade costs deter export performance more inlandlocked developing countries compared with other developingcountries.

Having common border is more important than having commonlanguage for export performance of these countries

On the contrary, African landlocked countries export levels are about30 percent higher-perhaps reflect the impact of liberalisation reformsundertaken by a number of these countries since the mid 1990s-which are not adequately captured by the explanatory variables usedin the model.

Conclusions

Comments and Feedback

Thank You !

Conclusions

Comments and Feedback

Thank You !

Conclusions

Reasons to think Why Africa is Different

Africa Had slow growth for almost 2 decades compared to othercountries

Africa initiated trade reforms in 1990s Africa Booming See RichardDowden (2009) Africa Altered States, Ordinary Miracles

Investment from China and other developing countries

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