Champions Wanted by Mélise Jaud Caroline Freund

Author:Mélise Jaud,Caroline Freund
Language: eng
Format: epub
Publisher: World Bank Publications

Notes

1. All specifications are based on ordinary least squares (OLS) estimation on nonzero trade flows and therefore pick only volume differences between existing partners (the intensive margin) but differ by including different dummies marking oil exporters.

2. The deviation of predicted trade from the benchmark is equal to eβ–1 where β is a fixed-effect coefficient on the relevant regional grouping, either on the exporting side (βexp), importing side (βimp), or both (βPair). The deviation of intra-regional trade from the benchmark is computed as .

3. Trade between two countries depends not only on the absolute cost of trading, which is known as bilateral resistance and is proxied by distance and other variables in gravity models, but on the cost of trading relative to the costs of trading with other countries, which is known as multilateral resistance. Failure to account for these so-called “third country” effects can lead to biased estimates and comparative statistics (Behar and Nelson 2009).

4. IMF (2014) notes that Tunisia’s and Morocco’s real effective exchange rates (REERs) have slightly depreciated since 2005, but it also shows evidence of rising current-account deficits (from 2 percent of GDP in 2007 to 8 percent for Tunisia and from 0 to 8 percent for Morocco) as well as declining reserves (from seven to four months’ worth of imports for Morocco over the same period).

5. Regressions excluding Eurozone destinations, as the Dirham is indexed on a basket of currencies with an 80 percent weight on the euro, report larger but still small effects. This suggests that part of the reason behind the small effect may be the lack of variation over time in Morocco bilateral RER.

6. In a Melitz model, only firm-level productivity is stochastic, so the expansion/contraction of product scope in Chatterjee, Dix-Carneiro, and Vichyanond (2013) has no “self-discovery” dimension; but one could extend the framework along Hausmann-Rodrik lines where firms discover their own capabilities, product by product, until one of them hits a home run. As the currency depreciates, the probability of such a success rises with the number of trials, which itself rises with the number of firms times the number of additional products by firm, a very large number.

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