5.1.6 Second dimension: the demand side

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From the course by University of Geneva

Global Statistics - Composite Indices for International Comparisons

4 ratings

University of Geneva

Global Statistics - Composite Indices for International Comparisons

4 ratings

The number of composite indices that are constructed and used internationally is growing very fast; but whilst the complexity of quantitative techniques has increased dramatically, the education and training in this area has been dragging and lagging behind. As a consequence, these simple numbers, expected to synthesize quite complex issues, are often presented to the public and used in the political debate without proper emphasis on their intrinsic limitations and correct interpretations. In this course on global statistics, offered by the University of Geneva jointly with the ETH Zürich KOF, you will learn the general approach of constructing composite indices and some of resulting problems. We will discuss the technical properties, the internal structure (like aggregation, weighting, stability of time series), the primary data used and the variable selection methods. These concepts will be illustrated using a sample of the most popular composite indices. We will try to address not only statistical questions but also focus on the distinction between policy-, media- and paradigm-driven indicators.

From the lesson

Export Potential Assessment (ITC)

This module focuses on trade indices developed by the International Trade Centre, the Export Potential Index (EDI) and the Product Diversification index (PDI). Frictions often create a gap between what a country could export and what it does export to markets around the world. Trade advisers could better address these frictions and help firms realize greater exports if they knew exactly which products and markets offer best chances. During this week, you will learn about the Export Potential Assessment (EPI and PDI), which indicates products, sectors and markets for trade development activities for over 200 countries and 4,000 products. Based upon an assessment of the exporting country’s supply capacity, the target market’s demand and tariff conditions as well as the bilateral links between the exporting country and the target market, it provides a ranking of untapped opportunities.

5.1.1 Introduction1:12

5.1.2 Global overview of the export potential assessment3:58

5.1.3 Motivation and data treatment8:40

5.1.4 Economic framework4:06

5.1.5 First dimension: the supply side7:59

5.1.6 Second dimension: the demand side5:41

5.1.7 Third dimension: the bilateral trade relations, and results4:29

5.1.8 Aggregation and final indicator construction5:50

Meet the Instructors

Stefan Andreas Sperlich
Professor
GSEM, Research Center for Statistics
Juan Manuel Rodriguez Poo (in Partnership with UNIGE)
Professor
Departamento de Economía, Universidad de Cantabria

I will now present the demand part of the export potential indicator.

This demand part, the demand factor is actually exactly the same that is used

also for the product diversification indicator that is presented later.

Demand of course, is important.

It's not enough that the country has

an export capacity to make it able to export to a particular market.

There is need to be some demand for the product.

This demand indicator is actually subdivided into two main components.

The first one depends only on the market and the product.

So, it does not depend on the exporter,

whereas the second one,

market access depends also on the exporter.

So, the first part,

is actually the share of a product in market demand of that particular market.

And, the gross of this share over the last years.

The second part market access indicator,

is about the tariff conditions in the target market for

that particular exporter and a second factor that captures distance considerations.

Though, I first start with the two first elements of this demand factor that correspond,

that are not exporter-specific.

First, we have the share in market demand that is the import

of these markets for that particular product divided by total import of the market.

And then the second,

we compute the evolution of this share between two set periods of time in the past.

And like for the RCA in the supply side,

we have shown that there is that part of this evolution

observed in the past is likely to continue in the future to a smaller extent.

So, a small share of it will be passed through to the next period.

So, if this factor is above one

then it means that there is an increase in the demand share.

The third component is about tariff conditions in the target market.

So, now we'll consider only one market and again we will compare the tariffs

that the country faces for the particular product that we consider in this market,

to the tariff that is applied by the same market to all suppliers.

And this time if the exporter has a tariff advantage,

then it means that it's more likely to be successful and have

a large share in this market than we would have otherwise.

So, when ROI ratio is above one then it means that we upgrade the demand share.

Finally, we have a distance factor.

So here, we will compare the average distance over which

the market usually imports a good to the distance of the exporter to that market.

And if these two distances are very different then it means

that the country's exporter is not ideally located to export that good.

So, to make it easier to understand I will give an example.

So here, we consider Ethiopia that wants to export knitted pullovers to France.

Overall, we can see that suppliers of this type of

pullovers are located a little more than 6,000 kilometres away from France.

And Ethiopia is also about 6,000 kilometres from France so,

it means that Ethiopia is ideally located to export that good,

we don't need to apply any correction.

Now, if we consider another product that is fresh vegetables.

Fresh vegetables in France are imported over a much shorter distance,

a little more than 1,000 kilometres.

Well, Ethiopia is still of course 6,000 kilometres away and it means that,

for that particular good,

fresh vegetables, there is a distance issue.

Ethiopia is not well located and our factor,

correction factor, is very close to one-half.

So, it means that we will reduce demand by a factor of two,

to take into account that there is a distance issue.

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