Quality and Sophistication: The Quality Margin
Figure 1.17. Technological Content of Morocco’s Exports
30 20 resource-based
low tech
10 0
medium tech
primary products
2008
1995 Source: Authors.
fertilizers toward manufacturing with moderate technological content. Apparel was one such new industry as was trade in parts and components related to automobiles. In terms of share of high-tech products in its overall exports basket, Morocco’s ratio is less than 10 percent, but this marks a significant improvement from a decade earlier. Unit Values Summary of data needs and sources
Indicators Cross-country comparison of unit values and quality at the SITC five- or HS six-digit level Quality ladders Co-mapping of quality and market share performance
Unit values computed from trade data in WITS; World Bank International Trade Department database developed for EU imports based on the COMEXT database from EUROSTAT; quality measured by unit prices relative to 90th percentile of the unit value distribution across countries exporting the product to the market.
Goods in the same product category vary widely in quality, proxied by unit values (nominal sales divided by quantity). When supply is competitive, higher prices are generally associated with higher quality and greater product differentiation.14 One way to increase the absolute
amount of export per capita is to increase the value of export per unit. Hwang (2006) finds strong evidence of convergence in product quality: When countries introduce a new product, they are usually low in quality, but their unit prices tend to converge to the global frontier at a rate of about 5 percent per year. The variance in the unit price of goods signals opportunities for countries to upgrade quality and to grow faster. Because upgrading of quality is potentially a secure avenue to boost growth, it is imperative to assess not only what a country produces but also what the quality of exports looks like. Table 1.5 gives an example of how unit values of seemingly similar products (at the SITC five-digit level) differ.15 The table includes unit values of imports into the United States in 2008 of selected goods from a range of developing countries, as well as Germany. Some products command an identical unit price (for example, dry or crushed capsicum), suggesting that prices are dictated internationally and little room exists for within-product upgrading. Unit values of some goods vary marginally (for example, basketwork, printing press parts, cutting blades for machines) whereas those of others vary widely (for example, frozen tuna, locks and keys, motor car bodies). Hwang (2006) suggests that because convergence of unit values occurs unconditionally, low-income countries need to produce goods within a category in which the global frontier of productivity is high and is possibly dominated by rich countries. Learning and catch-up is highest in those categories. If a country’s portfolio consists of a small share of differentiated goods in which upgrading possibilities are limited, the need for diversification becomes more urgent. Decomposing exports into value and volume contributions can tell an important story about competitiveness. For example, figure 1.18 illustrates that in Mongolia, the rapid growth in minerals exports in recent years is explained almost fully by rising world prices, a factor over which the country has little control. By contrast, in many other key products, like meat and cashmere garments, in
Table 1.5. Examples of Unit Values of Exports to the United States, 2008 SITC 5 07513 89971 72699 69561 69911 03414 78421
Product Capsicum dry and crushed Basketwork, wickerwork, etc. Printing press parts Cutting blades for machines Locks/keys/clasps/parts Tuna/skipjack/bonito Motor car bodies
Source: Computed using mirror data in Comtrade.
China
India
Costa Rica
3.070 4.698 57.020 12.304 9.227
3.070 4.736 57.020 12.049 18.305 14.686 170.997
3.070 4.868 57.025 10.816 133.196 10.310 123.23
495.27
Senegal
4.468
6.242
Vietnam
Pakistan
3.070 4.570 57.016 12.898 5.846 13.342
3.070 4.852 57.044 12.901 42.371
Germany 3.070 4.716 57.020 13.747 26.477 10,522.75
Module 1
high tech 40
45