Export Promotion:Export Promotion:What Works and What What Works and What

DoesnDoesn’’ttDaniel LedermanDaniel Lederman

The World BankThe World BankDevelopment Economics Research Development Economics Research

GroupGroup

5050thth ETPO ConferenceETPO ConferenceOctober 15, 2008 October 15, 2008

What You Want to KnowWhat You Want to Know

Are Are EPAsEPAs effective on average? $1US effective on average? $1US produces about $40produces about $40How much should we spend in export How much should we spend in export promotion? promotion? Small Is BeautifulSmall Is BeautifulShould we focus on certain firms? Should we focus on certain firms? Large firms versus small exportersLarge firms versus small exportersEffectiveness depends on Effectiveness depends on institutional arrangementsinstitutional arrangements

The World of Export Promotion The World of Export Promotion AgenciesAgencies

Widespread presenceWidespread presence•• Contacted 149 countries; in 116 there was an Contacted 149 countries; in 116 there was an

EPA.EPA.

The ControversyThe Controversy•• Public goods versus public institutions Public goods versus public institutions

Almost no empirical international analyses Almost no empirical international analyses of on their effectivenessof on their effectiveness•• Descriptive and qualitative comparisons (ITC)Descriptive and qualitative comparisons (ITC)•• User or customer surveys and feedbackUser or customer surveys and feedback•• Some statistical analyses, e.g., Rose on role of Some statistical analyses, e.g., Rose on role of

embassiesembassies

The World Bank and Export The World Bank and Export Promotion: A Tense RelationshipPromotion: A Tense RelationshipWorld Bank Study by Hogan, World Bank Study by Hogan, KeesingKeesing& Singer (1991): & Singer (1991): •• Too bureaucratic; Too bureaucratic; •• Public sector incentives; Public sector incentives; •• Focus on offFocus on off--shore activities;shore activities;•• Under funded;Under funded;•• ““One size fits allOne size fits all”” approach due to approach due to

donors;donors;•• AntiAnti--trade bias of protectionismtrade bias of protectionism..

Our ObjectivesOur ObjectivesDo Do EPAsEPAs promote exports? Empirical promote exports? Empirical evidence.evidence.What type of activity, institutional design, What type of activity, institutional design, targeting of exporters works best?targeting of exporters works best?

What we are not doing:What we are not doing:Check whether intervention is socially Check whether intervention is socially desirabledesirableOr is the return sufficiently high to justify Or is the return sufficiently high to justify investing in an EPA rather than schooling, investing in an EPA rather than schooling, roads, etcroads, etc……

International Survey of International Survey of EPAsEPAs

A tool for benchmarking?A tool for benchmarking?•• 18 questions over structure, 18 questions over structure,

responsibilities, objectives, financing, responsibilities, objectives, financing, and activitiesand activities

•• 149 countries were contacted; 116 had 149 countries were contacted; 116 had a national EPA and were sent a surveya national EPA and were sent a survey

•• 92 answered (4 said they couldn92 answered (4 said they couldn’’t t answer)answer)

•• Each answer was followed with phone Each answer was followed with phone calls to clarify and confirm responsescalls to clarify and confirm responses

How How BigBig Are EPA Are EPA BudgetsBudgets??

LearningLearning fromfrom pastpast mistakesmistakes:: ShareShare ofof executiveexecutiveboardboard seatsseats in in thethe handshands ofof thethe privateprivate sectorsector

PromotionPromotion forfor WhomWhom??LargeLarge FirmsFirms versus versus EstablishedEstablished ExportersExporters

What Do What Do EPAsEPAs Do?Do?

Correlation is Not Causation:Correlation is Not Causation:Exports and EPA BudgetsExports and EPA Budgets

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-5 0 5Log of Export Promotion Agency budget per capita

bandwidth = .8

Lowess smoother

More Technical Analysis Is Necessary:More Technical Analysis Is Necessary:The Problem of Spurious CorrelationsThe Problem of Spurious Correlations

1)1) OmmittedOmmitted VariablesVariablesGDP GDP perper capita (capita (institutionsinstitutions, , infrastructureinfrastructure); ); OwnOwn tradetrade restrictivenessrestrictiveness (OTRI)(OTRI)PartnersPartners’’ tradetrade restrictivenessrestrictiveness (MOTRI)(MOTRI)Exchange Exchange raterate volatilityvolatilityRegulatoryRegulatory burdenburden onon exportersexporters ((WBWB’’ss DoingDoing businessbusiness))OtherOther controlscontrols……

2)2) SampleSample BiasBiasProbabilityProbability ofof answeringanswering thethe surveysurvey waswas lowerlower forfor poorpoorandand smallsmall countriescountries, , Agencies in Agencies in thethe poorestpoorest countriescountries werewere more more likelylikely toto be be fundedfunded by by donorsdonors, , thethe role role ofof foreignforeign aidaid perper capita capita ……

3)3) Reverse Reverse CausalityCausalityHighHigh exportsexports leadlead toto thethe establishmentestablishment ofof EPAsEPAs

With a coefficient of 0.10, we are on the high end of Rose’s estimatefor Embassies in his gravity setup.

But we have more developingcountries in oursample, and wehaven’tcorrected for endogeneity yet

Results: Selection BiasResults: Selection Bias

ResultsResultsResults: Reverse Results: Reverse CausalityCausality

Results: what works and what doesnResults: what works and what doesn’’tt

What Works and What DoesnWhat Works and What Doesn’’tt

DoesDoes Export Promotion Export Promotion PayPay for for ItselfItself?: $1 ?: $1 producesproduces $40 in exports, but $40 in exports, but bewarebeware of of

heterogeneityheterogeneity!!

Optimal Budget: $1 per person

What You Want to Know, Take 2What You Want to Know, Take 2

Are Are EPAsEPAs effective on average? $1US effective on average? $1US produces about $40produces about $40How much should we spend in export How much should we spend in export promotion? promotion? Small Is BeautifulSmall Is BeautifulShould we focus on certain firms? Should we focus on certain firms? Large firms versus small exportersLarge firms versus small exportersEffectiveness depends on Effectiveness depends on institutional arrangementsinstitutional arrangements

Looking ForwardLooking ForwardFurther research and evaluation is Further research and evaluation is neededneeded•• Case studies with time series dataCase studies with time series data•• FirmsFirms’’ success following participation in EPA success following participation in EPA

programs. See Roberto Alvarez, programs. See Roberto Alvarez, International International Business ReviewBusiness Review, 13, 2004. , 13, 2004.

Designing countryDesigning country--specific specific evaluations is difficultevaluations is difficult•• ““SpilloversSpillovers”” and evaluations and evaluations ……