An industry approach to understanding export performance: stylised facts and empirical estimation
This note investigates whether industry specific characteristics are important determinants of the demand and supply of exports in the euro area, the United Kingdom and the United States. It has two parts: (i) an analysis of the dataset and a discussion of the differences across countries and industries; and (ii) the econometric estimation of the long run elasticities obtained from a supply and demand model for each industry, using an error correction model with quarterly data since 1991. Export volume growth since the early 1990s is found to have been higher in the euro area than the United Kingdom and the United States for most industries, with the exception –particularly in the United Kingdom– of those industries classified as high technology. Export price inflation in domestic currency in high technology industries has remained low over the period in all three regions, while it has increased in low and medium technology industries. The dataset also suggests that the slowing pattern of world trade seen over 2001 is due exclusively to reduced trade in "Office Machinery and Computers" and other "Information and Communication Technology" (ICT) industries. World export markets have moved in a similar manner in all three areas, although the United Kingdom's export market has not grown as quickly as that of either the United States or euro area. This is because the United Kingdom trades proportionally less with areas such as Eastern Europe and Latin America, which have experienced the strongest import growth over the sample. Export market shares have fallen across industries and countries, especially in low and medium technology sectors. The euro area is the best performing country, reflecting the gain in competitiveness facilitated by the depreciation of the euro, while the United Kingdom and the United States have lost competitiveness in most industries. Overall the econometric results show that on the demand side the industrial composition of a region's exports does not appear to be a major factor behind the price elasticity of exports; at least at our level of disaggregation. In terms of export supply, we find that the elasticity of export prices with respect to domestic costs is lower in the United Kingdom than elsewhere, suggesting that in the United Kingdom export prices are predominantly set using "Local Currency Pricing". In contrast, the United States and, to a lesser extent, the euro area pass through more of the changes in domestic costs onto export prices. This is confirmed by the estimation results across industries for each economic area.
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