REVEALED COMPARATIVE ADVANTAGE IN MANUFACTURED PRODUCTS AND FOREIGN TRADE STRUCTURE OF ESTONIA

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1 REVEALED COMPARATIVE ADVANTAGE IN MANUFACTURED PRODUCTS AND FOREIGN TRADE STRUCTURE OF ESTONIA Ville Kaitila, ETLA Tallinn

2 Research questions What (manufactured) products were important in Estonia s foreign trade in ? In which products has Estonia gained/lost international market shares? Where lies Estonia s comparative (dis)advantage? What are the principal net export products? With which EU27 countries does Estonia compete with? How relative unit export values have developed.

3 35 Main export goods, % of total Export 10 structure has 5 become more diversified Electrical machinery and equipment 27 Mineral fuels and oils 44 Wood and articles of wood 87 Vehicles, parts and accessories 94 Furniture 84 Machinery and mechanical appliances 72 Iron and steel 73 Articles of iron or steel 39 Plastics and articles thereof 22 Beverages, spirits and vinegar 62 Clothing, not knitted or crocheted

4 Share of manufacturing exports by intensity of production, % (not all exports can be thus classified) Labour-intensive Resource-intensive Scale-intensive Differentiated goods Science-based

5 30 Gaining and losing market shares Topexportproducts, average of share in 1999 and 2007 Average annual change in EU27 exports, % Wood in the rough 7204 Ferrous waste and scrap 8529 Parts for TV, radio and radar of Transmission apparatus for radio telephony etc Fuel wood 9404 Articles of bedding etc Prefabricated 4418 Builders'buildings joinery and carpentry of wood Change in the share of Estonia in total EU27 exports, %- points

6 Gaining and losing market shares Average annual change in EU27 exports, % Wood sawn or chipped 7308 Structures and parts of iron or steel 8708 Parts for motor vehicles 6203 Men's/boys' trousers, etc Parts for fork-lift trucks etc Insulated wire, cable, etc Other furniture and parts 8703 Motor cars and vehicles 8517 Electric apparatus for line telephony etc Seats and parts thereof 7210 Flat-rolled products of iron or nonalloy steel 2208 Ethyl alcohol undenatured Change in the share of Estonia in total EU27 exports, %-points

7 Comparative advantage and labour productivity According to the theory of comparative advantage, a country will specialise in its exports in those products that it produces most efficiently, i.e. with highest productivity, in relative terms.

8 According to Nevalainen (2008), Estonia has the highest relative productivity (compared with EUR-12, LV, LT, PL, CZ, HU) in wood and wood products, other non-metallic mineral products, and other manufacturing (includes furniture); + support for comparative advantage in textiles, and basic metals and fabricated metal products. and lowest relative productivity, i.e. comparative disadvantage, in chemical, rubber, plastics and fuel products, machinery and equipment, and electrical and optical equipment. Note that the data are at a very aggregated level. Interestingly, wood industries and miscellaneous manufacturing have been the major FDI beneficiaries.

9 Estonia s comparative-advantage (RCA) exports can largely be found in those sectors that have the highest relative productivity. Also, net exports are dominated by wood and furniture. Top exported manufactured products with RCA in 2007: HS-4 and description % of total exports 8517 Electric apparatus for line telephony, etc Insulated wire, cable, electric conductors; optic fibre cable Wood sawn or chipped length Builders joinery and carpentry of wood, etc Structures and parts of iron or steel bridges and sections Ferrous waste and scrap Ethyl alcohol undenatured Prefabricated buildings Flat-rolled products of iron or non-alloy steel Other furniture and parts Mattress supports; articles of bedding etc. 1.6

10 Similarity in export structures Overall, Estonia s export structure is now more similar with other EU27 countries than in Similarity of export structure the greatest with Latvia and Lithuania.

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