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Trade and Competitiveness in Argentina, Brazil and Chile: How market imperfections and trade barriers shape specialisation: South America vs. OECD

 

Chapter 2 of Trade and Competitiveness in Argentina, Brazil and Chile demonstrates that the ability of a country to develop certain segments of the tradable sector depends on the type of competition that characterises the marketplace and the impediments to competitive trade. Based on sectoral evidence for OECD countries, the authors distinguish four market structure clusters. These are identified according to the degree of product differentiation (homogeneous versus differentiated, proxied by R&D intensity and advertising) and the dynamics of market concentration (segmented versus fragmented, proxied by sunk costs). Compared with traditional exports, there are various positive externalities related to exporting differentiated products, i.e. dynamic international demand, high spillovers to productivity, and return to labour skills and innovation.

The paper compares A-B-C with Ireland, Korea and Mexico (I-K-M). The analysis show that A-B-C and I-K-M developed very differently in terms of their structure of specialisation. A-B-C have remained specialised in relatively homogeneous products, where competition is mainly by prices or quantities. IKM, in contrast, are mainly specialised in differentiated products produced by large firms.

A-B-C's primary specialisation (RCAs1) is less dynamic in world trade…


1. RCA: Revealed comparative advantage indicator (Xi/Sum(Xi)-Mi/Sum(Mi)).

Note: Average share in world trade of products corresponding to the top-20 comparative advantages in 1970 and 2000 for eah country. This average was weighted by the structure of exports of each country, for the 2 chosen years.
Source: CEPII, CHELEM database.

… compared with that of Ireland, Korea and Mexico

1. RCA: Revealed comparative advantage indicator (Xi/Sum(Xi)-Mi/Sum(Mi)).

Note: Average share in world trade of products corresponding to the top-20 comparative advantages in 1970 and 2000 for eah country. This average was weighted by the structure of exports of each country, for the 2 chosen years.
Source: CEPII, CHELEM database.

The expansion of the tradable sector in A-B-C is hindered by their structure of specialisation, notably in terms of adaptation to world trade trends. A-B-C suffer from high trade policy barriers in OECD countries for homogenous and low-processed products, areas for which they have natural competitive advantages. For differentiated products, they face strong endogenous market barriers created by the large R&D and advertising outlays needed to penetrate these markets. In this regard, IKM benefited from strong regional integration and exposure to international trade, while A-B-C are relatively less integrated into global production networks.

See also Oliveira Martins and Price, "How market imperfections and trade barriers shape specialisation: South America vs. OECD," OECD Economics Department Working Paper No. 395, June 2004.

For further information contact the chapter co-author Joaquim Oliveira Martins at webmaster@oecd.org.

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