EXPORT PROMOTION AND POVERTY: WHAT DO WE KNOW?

Marcelo Olarreaga,

University of Geneva and CEPR

Arnoldshain XI

University of Antwerp

June 26-28, 2013

WHAT 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.

LITERATURE ON IMPACT OF EPA IN LDCS

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.

THE (ALMOST) GOOD NEWS

Survey of EPAs around the world suggests that promoting SME exports is their third top priority

Strategy Mean

Promote all sectors 1.6

Diversify to new destinations

2.8

Promote SME exports 2.8

Promote new products 3

Attract export-oriented Multinationals

4.1

Development of Clusters 4.3

Inclusion in Value Chains 4.4

Other 4.4

THE 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 exporters 25-50%

Non-exporters ~10%

THE 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

Exit 401 1134 -0.000 0.018 -0.01

Nonexporter 401 1134 -0.403 0.034 -11.96***

Survival 401 1134 0.344 0.038 9.10***

Entry 401 1134 0.059 0.023 2.58***

Δexp_int 401 1133 0.014 0.012 1.15

IMPACT 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?

WHAT DO EPA'S DO?

Most of EPAs training grants are spent on helping find new markets

Training on Average Rank (1 to 9)

Marketing 1.3

Standards and certification 3.1

Finding an agent overseas 3.5

Packaging 3.7

Transportation/Logistics 4.3

Pricing 4.4

Trade Finance 4.7

Customs (dealing with) 5.5

Others 5.5

THE (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)

EASIER TO BUILD REPUTATION

Online platforms provide relatively cheap ways of acquiring reputation

Testing differences of gravity determinants for powersellers and others on eBay

IMPACT 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….

IMPACT IS LARGER WHERE MOST NEEDED

These effects are larger in poor countries with high income inequality….

EASIER TO EXPORT FOR SMES

85% of US firms on eBay export (against 4% offline) – Lendle et al. (2013)

SME represent a larger share and deviations from Zipf

CONCLUDING 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?