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We are grateful to Swarnali Ahmed, Max Appendino, Varapat Chensavasdijai, Nan Li, Alex Mourmouras, Edward Robinson, Rachel van Elkan and our colleagues in the Asia and Pacific Department (APD) for very helpful comments and suggestions and to Jingzhou Meng for excellent research assistance.
The economic complexity of a country’s export product used in the paper follows Hidalgo and Hausmann (2009). The notion of economic complexity is related to the number of countries that export the product and the diversity of those countries’ exports. If a product is produced by a small number of countries and if those countries have a diverse export product mix, the economic complexity of the product is measured to be higher. See section II.B for further details.
We use position in GVCs and foreign value added in exports interchangeably in the paper.
A recent work by Ahmed, Appendino and Ruta (2015) assess the implications of GVC participation on the price elasticities of trade. They find that the rise of GVC participation explains on average 40 percent of the fall in the price elasticity from 1996–2012.
Other studies have looked at the role of supply constraints in affecting trade elasticities. See Tulin and Raissi (2015) and Anand et al. (2015) for an application to India and South Africa respectively.
Industries are classified as export-oriented when exports constituted more than 50 percent of final output. The calculations are based on Singapore’s 2010 Input-Output Tables.
Changes over time and across countries in the units used to measure volumes for a given product could be problematic for our measure of relative export prices. Conducting a scan of the products exported by Singapore (at the 6-digit level) we observe that over time the volume units are broadly fixed. Potential differences across countries are harder to tackle and could add noise to our measure of relative prices. We take comfort in the fact that this measurement error is not likely to be correlated with other economic indicators and hence would not bias our results.
In other studies, the relative export price or the real effective exchange rate for individual product groups is estimated by using domestic export price multiplied by the nominal effective exchange rate and divided by the domestic price of the product in trading partners. The ability to match sector specific prices across trading partners has proven to be complicated, depending on the product group and data availability. This measure of relative price has the advantage of being product-specific at a much detailed level of disaggregation and capture Singapore’s export price relative to its competitors.
We match industries in Singapore’s input-output tables with the HS 4-digit level product codes that are provided as part of the input-output tables. When there is a match between a certain product code and multiple input-output industry codes, we use a weighted average of the input-output industries with the exports of that industry used as weights.
Another important caveat related to these measures of GVC integration is the fact that we use the Input-Output Tables for 2010 only and therefore do not account for potential changes over time in the extent to which a certain product is used in exports and the import content of exports.
As mentioned earlier, the complexity index for individual products is available at the HS 4-digit level for 1995–2012, which allows us to match Singapore’s export products with the index of complexity. We assume that all 6-digit products under the same 4-digit product code have the same complexity. For years that we do not have the product-level economic complexity index we assume that it is the same as the closest available year.
The Mean Group Estimator (Pesaran and Smith (1995)) assumes cross-sectional independence of error terms. It is possible to relax this assumption by using the common correlated effects mean group (CCEMG) estimator (Pesaran (2006)). Alternatively, one can include trend in each group to estimate the elasticities. Our results based on CCEMG and including trend suggest that the estimates of price and demand elasticities remain reasonably close to the baseline results in Table 1. Export price elasticities for all sectors range from -0.285 to -0.313 with statistical significance. For the two selected sectors, the price elasticity ranges from -0.23 to -0.45 for category 84, while the elasticity ranges from -0.49 to -0.55 for the category 85. The coefficients also look close to the fixed-effect regressions with product category and time fixed effects: for the overall sectors, price elasticity -0.237 with statistical significance. For category 84, the price elasticity using the fixed-effects is -0.487and for category 85, -0.477.