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Vahram Ghushchyan, Ph.D., AIPRG Mher Baghramyan, AIPRG Implications of Armenian Dram Appreciation for the Competitiveness of Armenian IT, Tourism, and.

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Presentation on theme: "Vahram Ghushchyan, Ph.D., AIPRG Mher Baghramyan, AIPRG Implications of Armenian Dram Appreciation for the Competitiveness of Armenian IT, Tourism, and."— Presentation transcript:

1 Vahram Ghushchyan, Ph.D., AIPRG Mher Baghramyan, AIPRG Implications of Armenian Dram Appreciation for the Competitiveness of Armenian IT, Tourism, and Food Processing Industries Washington, DC May 17-18, 2008 Conference Looking Forward: Global Competitiveness of the Armenian Economy

2 AMD/USD Nominal Exchange Rate, Armenia May 2008 Nominal Exchange Rate, AMD/USD, (year average) Change in Nominal Exchange Rate, % to previous year 3.3%0.9%-7.8%-14.2%-9.1%-17.8%-9.4% Source: NSS of Armenia

3 Technical Inefficiency Methodology: Stochastic Frontier Model Outputs Production frontier Actual production.... Source: Wu, 1996, modified by authors Inputs Allocative Inefficiency

4 Methodology (continued) Exchange Rates Technical Efficiency Exports, IT and Food Processing Profits, Tourism and Food Processing

5 Collected Data 23 Food Processing Companies 13 IT companies 15 Incoming Tour Operators 7 Hotels

6 Mean Annual Values per Company, 2006 ITHotelsTour Operators Food Revenue, USD489,942761,072170,2091,346,085 Profit, USD57,466303,89426,209155,653 Capital Assets, USD348,7883,295,67344,524415,954 Labor, persons Monthly wage of productive workers, USD Wage of admin. workers, USD

7 Model 1: Translog Production Function Model 2: Cobb-Douglas Production Function

8 Technological Progress (TP) : TP is calculated as a derivative of the production function with respect to time If TP is positive (negative), then the production frontier shifts up (down).

9 Summary Statistics of Technical Efficiency (te1) by Company Type, Average ObsMeanStd. Dev.MinMax Hotels IT companies Tour Operators Food Processing companies

10 Mean of Estimated Parameters, IT and Tourism Industries, , yearte1te2tp1tp Note: te – technical efficiency, tp = technological progress. 1 and 2 refer to the Translog and Cobb-Douglas production functions respectively.

11 Mean of Estimated Parameters, Food Processing Industry, yearte1tp Note: te – technical efficiency, tp = technological progress. 1 refers to the Translog Production Function.

12 Regression Outputs, using Nominal AMD/USD Exchange Rate te1 IT&TOUR = *exch*** – *infa – *inff *exp** e-07*marketr *tour – *hotel te2 IT&TOUR = *exch*** – *infa *inff *exp** e-07*marketr *tour *hotel te1 FOOD = *exch*** *infa *inff *exp – 4.10e-09*marketr * significant at 10%; ** significant at 5%; *** significant at 1%.

13 Regression Output, IT and Tourism, using Real Effective Exchange Rate te1 IT&TOUR = – *reer*** *exp* e-07*marketr *tour – *hotel te2 IT&TOUR = – *reer*** *exp** e-07*marketr *tour – *hotel * significant at 10%; ** significant at 5%; *** significant at 1%.

14 Estimating Loss in Export of IT and Food Processing Companies 1 Export IT = – * te1*** Export FOOD = – * te1*** 10% improvement in the degree of technical efficiency of an average IT company brings about 24.5 million dram or 73.9 thousand USD of export and 74 million (about USD 225 thousand) of additional exports of processed food.

15 Estimating Loss in Export of IT and Food Processing Companies 2 Loss in Export IT = 66,034*Number of companies * exchange rate 13 IT companies Exchange Rate: , 2006 – 416 AMD/USD Export Loss: 140 million AMD, or 13% of their actual Exports Loss in Export FOOD =12,196 *Number of companies * exchange rate 23 Food Processing companies Export Loss: 45 million AMD, or 3% of their actual Exports

16 Profit Loss of Tourism and Food Processing Companies Each point of dram appreciation caused an average tour operator and hotel to lose about 112 thousand AMD (about 340 USD) of profit before tax. Total loss million AMD or 15% of actual profit and Average food processing company lose just 14 USD of profit before tax which for our surveyed companies was slightly less than 1%.

17 Policy Recommendations Effect of Work Experience: one year increase of average work experience of the companys staff offsets about 2 points of dram appreciation. Allow companies to spend more than 1% of revenue for training purposes Creating a link between educational institutions and employers in the area of curriculum development Exemption or delayed payments of VAT on Investments and/or Import of capital assets

18 A. How much would be the difference (in percentage terms) of Companys 2006 revenue, if the exchange rate remained at the level of 2003, i.e. 580 drams per 1 USD? %

19 B. What AMD/USD exchange rate would be the most favorable for Your Company and would make it competitive? AMD/USD

20 C and D. What is the percentage change of Companys Domestic prices (in AMD) and Export prices (in USD) compared to 2003?

21 E. What percentage of your Companys capital assets and human recourses is being used (rate of utilization), on average, during year? %

22 F. Please, evaluate State – Your Company interrelations according to 0-10 point system (0 - extremely unfavorable, 10 - the most favorable).

23 THANK YOU! s:


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