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E XPORT P ROMOTION AND P OVERTY : W HAT DO WE KNOW ? Marcelo Olarreaga, University of Geneva and CEPR Arnoldshain XI University of Antwerp June 26-28,

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Presentation on theme: "E XPORT P ROMOTION AND P OVERTY : W HAT DO WE KNOW ? Marcelo Olarreaga, University of Geneva and CEPR Arnoldshain XI University of Antwerp June 26-28,"— Presentation transcript:

1 E XPORT P ROMOTION AND P OVERTY : W HAT DO WE KNOW ? Marcelo Olarreaga, University of Geneva and CEPR Arnoldshain XI University of Antwerp June 26-28, 2013

2 W HAT DO WE KNOW ? Positive impact of EPA on export growth (Lederman et al. 2010) But who benefits? The evidence on trade, income inequality and poverty is mixed (Goldberg and Pavnick, 2004 and Winters et al., 2004) On exports and poverty it is more positive (Porto 2004, 2008) But no evidence on EPA induced export-growth If EPA's focus on large firms then the inequality (and perhaps poverty) can increase: 10 percent of firms represent 70 to 80 percent of exports. Poor households are likely to have their income associated with SMEs, not multinationals Evidence for developed countries is worrisome (Bernard and Jensen, 1999 and Görg et al, 2008): Impact only on the intensive margin, benefitting large established exporters and not new and smaller firms.

3 L ITERATURE ON I MPACT OF EPA IN LDC S Most existing studies on the "extensive" margin in developing countries are conditional on being an exporter (Volpe et al, 2008, 2009, 2011 or Cadot et al. 2011) Extensive margin is defined as a new market or a new product, but not a new firm. The distinction is important if we are focusing on poverty and income inequality. New exporters are much smaller than established exporters And poverty reduction is likely to come through the connection of SMEs to world market Existing studies can very imperfectly address the question of how EPA may affect poverty, or more precisely how EPAs can help SMEs connect to world markets.

4 T HE ( ALMOST ) GOOD NEWS Survey of EPAs around the world suggests that promoting SME exports is their third top priority Strategy Mean Promote all sectors1.6 Diversify to new destinations 2.8 Promote SME exports2.8 Promote new products3 Attract export-oriented Multinationals 4.1 Development of Clusters4.3 Inclusion in Value Chains4.4 Other4.4

5 T HE BAD NEWS Survey of EPAs around the world suggests that the largest budget share is spent on established exporters, not on new or non-exporters… Readiness to Export% of budget spent (mean) New or occasional exporters 10-25% Established exporters25-50% Non-exporters~10%

6 T HE REALLY GOOD NEWS In a study of the impact of seven LAC's EPAs on export growth (Lederman et al, 2013) find that the mainly affect the entry and survival of firms in export markets. So the small budget spent on new exporters and non-exporters seems to be effective. Diff in Diff with nearest neighbor matching: Outcome Variable Treatment Group Control Group Average Treatment Effect on Outcome Bootstrapped Standard Errors T-Statistic Exit4011134-0.0000.018-0.01 Nonexporter4011134-0.4030.034-11.96*** Survival40111340.3440.0389.10*** Entry40111340.0590.0232.58*** Δexp_int40111330.0140.0121.15

7 I MPACT ON POVERTY We don't know. We need more evidence But if EPAs work through the firm entry margin we can expect SMEs benefitting relatively more than if it works through the intensive margin. EPAs can help make trade more inclusive, and therefore make it politically more acceptable But how can they do it?

8 WHAT DO EPA ' S DO ? Most of EPAs training grants are spent on helping find new markets Training onAverage Rank (1 to 9) Marketing1.3 Standards and certification3.1 Finding an agent overseas3.5 Packaging3.7 Transportation/Logistics4.3 Pricing4.4 Trade Finance4.7 Customs (dealing with)5.5 Others5.5

9 T HE ( NEGLECTED ) ROLE OF E - COMMERCE E-commerce significantly reduces information asymmetries (caputred by the impact of distance on trade flows), making it easier for smaller firms to participate in world markets (Lendle et al. 2012)

10 E ASIER TO BUILD REPUTATION Online platforms provide relatively cheap ways of acquiring reputation Testing differences of gravity determinants for powersellers and others on eBay

11 I MPACT IS LARGER WHERE MOST NEEDED Online platforms provide relatively cheap ways of acquiring reputation And these effects are larger in remote countries with corruption, income inequality…. 97% of firms on eBay export Deviations from Zipf law that we observe offline…. Providing access to online markets can be a very efficient way of connecting the poor to foreign markets….

12 I MPACT IS LARGER WHERE MOST NEEDED These effects are larger in poor countries with high income inequality….

13 E ASIER TO EXPORT FOR SME S 85% of US firms on eBay export (against 4% offline) – Lendle et al. (2013) SME represent a larger share and deviations from Zipf

14 C ONCLUDING REMARKS We need more research on the impact of export promotion on poverty and income inequality A strong focus of EPA on SME can help dissipate fears that agencies are captured. Online platforms could provide an interesting tool to help international trade be more inclusive, making everyone benefit directly from smooth and well- functioning borders Raises the question of how EPAs can help provide access to online markets: Local offices devoted to online markets instead of expensives offices abroad?


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