Economic Complexity Analysis of Export Prices

Aurelio Patelli, Dario Mazzilli, Angelica Sbardella, Andrea Tacchella and Luciano Pietronero

No JRC136943, JRC Research Reports from Joint Research Centre

Abstract: Developing a comprehensive international trade database is crucial for economic analysis, as trade activities are important drivers for the competitiveness and dynamism of an economy’s productive structure. At present, import-export data are available from the COMTRADE database, maintained by the United Nations on the basis of global customs reports. However, often differences between the information reported between importer and exporter declarations arise, due to factors such as transport costs or unharmonised reporting systems. The main goal of this project is to reconcile trade values, quantities, and unit values with state-of-the-art techniques, and provide a uniform international trade dataset at the product level for each country. Furthermore, newly reconciled features are made available, namely the product Quantities, typically expressed in Kilograms or in the number of items, and the Unit Values, corresponding to the value per unit of quantity of the products. The new features are analyzed in detail, with Unit Value statistics showing unexpected behaviour and power-law price distributions frequently observed. The presence of fat tails in the distribution of export unit values may thus question the possibility of defining the statistical moments of prices, such as the mean or the variance, for international trade. In this report, we integrate Economic Complexity analysis with the literature on Unit Values and propose a possible connection with complexity measures. In fact, prices can be used to redesign the empirical bipartite trade networks connecting countries to the products they export competitively which are an essential tool in Economic Complexity studies. Constructing unit value matrices and using them as input for economic complexity metrics allow us to obtain more accurate GDP forecasting and thus to inform policy on the growth potential of single economies. Differently from traditional international trade theory that overlooks possible differences in the quality of the goods produced by different countries, more recently a large literature has explored the role of prices in the global patterns of bilateral trade, especially as proxies of production and export quality, building on the work of Linder (Linder, 1961) who studied the propensity of higher income countries for high-quality products, both in terms of demand and supply, and argued that exchanges are more likely to happen between countries with similar income per capita levels. Relying on different general equilibrium and gravity models that include quality as a key determinant of the direction of international trade, this literature highlights large country differences in the quality of exported products (Schott, 2004,Hummels and Klenow, 2005). Further, using pricing analysis, we classify products into quality categories based on price-distance dynamics. For instance, a price increasing with the distance between the importer and the exporter is thus related to a market with high-quality products and competition on quality, while if the price decreases, it suggests that the product is in a price-competition market.

Date: 2024-02
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