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Manufactured exports from developing countries and their terms of trade: A reexamination of the Sarkar-Singer results
WorldDevelopmenr, Vol. 21, No. 10, pp. 1607-1613, Printed in Great Britain
Manufactured
0305-750X/93 $6.00 + 0.00 0 1993 Pergamon Press Ltd
1993.
Exports From Developing Countries
and Their Terms of Trade: A Reexamination Sarkar-Singer Results
of the
PREMACHANDRA ATHUKORALA* La Trobe University, Bundoora, Victoria, Australia Summary. Sarkar and Singer (1991) argue that the terms of trade for exports of manufactures from developing countries (DCs), like that for their primary commodity exports, have manifested a long-term trend favoring the importing developed countries. We contend here that the authors have not paid adequate attention to appropriately adjusting the data and that they have misinterpreted the results. When these limitations are taken into account, a sound basis exists for the conclusion that, through rapid expansion of manufactured exports, DCs as a group have achieved significant gains in import purchasing power without generating adverse impact on the net barter terms of trade.
1. INTRODUCTION One of the most influential views in the postwar development policy debate has been the PrebischSinger hypothesis concerning a structural tendency for the net barter terms of trade (NB’IT) of developing countries (DCs) to deteriorate in their dealings with the industrialized countries (KS). Prebisch (1950) and Singer (1950) launched this hypothesis at a time when the export structure of DCs was dominated by primary products. Reflecting this initial condition, the debate on the long-term deterioration in NBTT has been carried out assuming a close overlap between the NBTT of primary commodities relative to manufactures and the NBTT of DCs relative to ICs. Since about the late 1960s there has, however, been a continuous and considerable shift in the export structure of DCs away from primary commodities and toward manufactured goods.’ In this context, it is pertinent to pose the question whether this emerging trade pattern has allowed these countries to escape unequal exchange relations with ICs. In a recent synthesis of the postwar terms of trade debate, Singer (1987) addresses this issue on a priori grounds. He comes up with the proposition that despite the shift in the commodity composition of exports, the NBTT of DCs would continue to deteriorate because “the type of manufactures exported by these countries in relation to the types of manufactures exported by ICs share some of the disadvantages pointed out by Prebisch-Singer for primary commodities in relation to manufactures” (p. 628). In a recent article in this journal (Vol. 19, No. 4, pp. 333-340)
Sarkar and Singer (henceforth S-S) attempt to test this hypothesis by examining the behavior of NBTT for total manufactured exports from DCs (during 1970-87) and manufactured exports from 29 individual DCs (during 1965-85). They claim that both aggregate and country-level results support the hypothesis. The Prebisch-Singer thesis was one of the main rationales for the widespread adoption of import-substitution industrialization in the developing world in the immediate postwar period. While many disappointments with this strategy have subsequently led to a significant shift in development ideology in favor of export-oriented industrialization, trade policy regimes of the majority of DCs are still basically “inward” looking in nature. As a new twist to the original Prebisch-Singer view, the S-S analysis seems to have a greater appeal to many in the developing world who advocate a continuation, or return to, the inward-looking development strategies of the 1950s. Given this policy significance, the purpose of this note is to subject the analysis of S-S to close scrutiny. We reestimate the aggregate NBTT trend equation reported in S-S with appropriately adjusted data (Section 2) and reinterpret their country-level results in order to rectify some pitfalls in the original interpretation (Section
3).
*The author is indebted to Lee Smith for excellent research assistance and to Jayant Menon for careful reading of the draft of the paper. Final revision accepted: February 25, 1993.
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WORLD DEVELOPMENT
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2. DATA LIMITATIONS The aggregate NBTT series used by S-S is the ratio of the unit value index of manufactured goods exports from DCs to the unit value index for manufactured goods exports from ICs countries. The two data series come from the UN, Monthly Bulletin ofStatistics. The country level analysis makes use of two alternative NBTT series for each country based on unpublished data obtained from the UN Statistical Office. One is derived by dividing the unit value index of manufactured goods exports of the country by its own unit value index of manufactured good imports and the other by dividing the former by the manufactured good export unit value index of the United States. Limitations of unit value indexes as proxy measures of the “true” price changes of manufactured goods are by now well known in the literature.2 Unit values are values per unit of quantity at selected level of a given commodity classification, usually at the four-digit level of the Standard International Trade Classification (SITC). Unlike primary commodities, manufactured goods tend to be highly heterogeneous even at a very fine level of commodity disaggregation. Changes in a unit value index compiled by combining various unit values derived at a selected level of a given commodity classification are, therefore, influenced not only be “genuine” price changes but also by changes in the commodity mix. In other words, changes in the commodity mix can generate spurious price movements. This bias might be particularly severe for aggregate unit value indexes for DCs as their export structures are subject to significant changes in line with policy shifts. Unit values are defective not only because of this ambiguity of computation but also because quantities used to compute unit values are usually available only for a limited number of categories at the four-digit SITC level of aggregation. Therefore unit values for aggregates such as total manufactures from a given country, or worse still for a group of countries, are highly unreliab1e.j S-S do not mention these limitations. It may be that they simply assumed the errors to cancel out as they are relevant for both the numerator and the denominator of their NBTT indexes. Even if we consider such an assumption to be reasonable, the data used by S-S still suffer from at least two major limitations which are likely to have infused an undue downward bias into NBTT trend rate estimates. First, the aggregate UN export unit value indexes for both DCs and ICs relate to total rather than intergroup exports of these two country groups. Thus the derived NBTT index is not a pure indicator of the changes of gains in trade between the periphery and the centre. We admit that the index for DCs is a reasonable proxy for their exports to the ICs since intraregional exports count for only about 25% of the total.
This is not, however, the case with the index for ICs. Only about 20% of manufactured exports from ICs are absorbed by DCs. Furthermore, the commodity composition of their exports to DCs is believed to be significantly different from that of their intraregional exports. It is, therefore, conceivable that, in the aggregate, relative price movements faced by DC buyers of exports from ICs are different from those faced by IC buyers. The authors do mention this limitation of their data, but they fail to suggest the direction of the bias involved. The results of a recent NBER study of the price behavior of manufactured exports form ICs (Lipsey, Molineri and Kravis, 1990) permit us to surmise that the bias would have been in favor of the deteriorating NBTT trend hypothesis. On the basis of carefully constructed price (not unit value) indexes for total manufactured exports to DCs, the United States, Japan and Germany during 195048, this study concludes that “in most cases, exports to the world (and therefore exports to the developed countries to a greater extent) increased more rapidly in price than exports to developing countries” (p. 16). Second, for this type of a study, the UN unit value index for DCs has a serious limitation emanating from the nature of its commodity coverage. The definition of manufactured goods used in constructing this index is the sum of SITC sections 5-8, and therefore the index is affected by price movements of nonferrous metal products (SITC 68).4 As far as exports from DCs are concerned, this commodity category is composed predominantly of mineral products (mostly unprocessed) such as copper, tin, zinc, lead and aluminum, whose price movements tend to be significantly different from those of standard manufactured goods. Moreover, as compared with ICs, this commodity group accounts for a greater share of total SITC 5-8 exports from DCs5 Because of these reasons, the standard practice of GATT, World Bank and International Monetary Fund (IMF) as well as most independent researchers is to define manufactured goods as “SITC 5 through 8 less SITC 68.” In order to test the bias in S-S estimate resulting from the nature of commodity coverage, we choose to reestimate the NBTT trend equation after purging nonferrous metals from the UN unit value index of manufactured exports from DCs (henceforth denoted XUVDC). In a recent analysis of manufactured exports from DCs, Balassa (1990) uses the readily available UN price index of nonferrous metal exports from these countries (NFPDC) for a similar adjustment of XUVDC. This practice, despite its empirical expediency, suffers from the incompatibility of true price indexes and unit value indexes in terms of reflecting price movements.h Unit values normally tend to move less quickly than market prices owing to various factors such as transportation and recording lags, long-term contracts, and formal and informal supplier-customer links. The use of NFPDC may,
SARKAR-SINGER
therefore, lead to over adjustment (under adjustment) of XUVDC during period of falling (rising) prices. Mindful of this limitation, we constructed a fresh unit value index for nonferrous metal exports from DCs countries (NFUVDC). We adjusted XUVDC, however, using both NFPDC and NFUVDC to yield two alternative (adjusted) NBTT series in the hope that the comparative results may provide useful guidance for further research in this area. The trend rate estimates for the two NBTT series, together with the original S-S estimate, are reported in Table 1. To facilitate the interpretation of the results, trend rates of NBTT for nonferrous metal exports are also reported. During the period under study, NBTT for nonferrous metal exports from DCs measured by the UN price index and our unit value index deteriorated at an annual compound rate of 4.4% and 3.6% respectively. When this commodity category is excluded from the commodity coverage of the UN unit value index, the trend coefficients of the two adjusted NBT’I series turn out to be -0.2% and -0.1%
Table 1.
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RESULTS
respectively, and they are not statistically different from zero in terms of the standard t-test. These estimates clearly suggest that the statistically significant -1% trend rate reported by S-S merely reflects adverse price movements experienced by nonferrous metals. It is important to note that the alternative NBTT trend estimates are remarkably insensitive to the type of index used to measure price movements of nonferrous metal exports. To illustrate the sensitivity of country-level results to the price movements in SITC 68 exports, the trend rate estimates of S-S for individual countries are compared with shares of SITC 68 exports in total (SITC 5-8) exports in Table 2. Note that the major nonferrous metal exporting countries in the S-S sample Chile, Ghana, Indonesia, Peru, the Philippines and Venezuela all have negative trend rates.’ Furthermore, most of the statistically significant negative trend rates of very high numerical magnitude which receive much emphasis in S-S’s discussion are shown by these countries. Thus, the data clearly sug-
Trends in net barter of trade for exports of manufactures als of DCs vis-d-vis ICs, 1970~87*
Commodity category? Manufactures: SITC 5-8 XUVDC/XUVIC Nonferrous metals: SITC 68 NFPDV(a)/XUVIC NFPDV(b)/XUVIC
Manufactures: SITC 5-8 less SITC 68 XUVDC(a)/XUVIC XUVDC(b)/XUVIC
Annual compound rate of change (%)
R2
and non-ferrous
DW
-l.OO$
0.41
1.45
-3.609 (5.65) -4.430 (7.56)
0.67
1.72
0.76
I .75
a.2
0.06
1.23
-0.1
met
1.03
Estimate manufactures defined as SITC 5-8 (Item 1) is from Sarkar and Singer (1991) Table 1. Others are author’s estimates. The data sources are listed, and the procedure followed in constructing NFUVDC series and deriving XPDC(a) and XPDC(b) series is explained in the Data Appendix. Notes:.*Trend rates are obtained by fitting (using OLS) the equation: log NBTT = a + rT, where T is the time variable and the estimate of r is the trend rate. The t ratios are given in brackets. t Variable notations: XUVDC = original (unadjusted) UN export unit value index for DCs, XUVIC = UN export unit value index for industrial countries, NFUVDC = unit value index (specifically constructed for this study) for non-ferrous metal exports (SITC 68) from DCs, NFPDC = UN price index for non-ferrous metal exports from DCs, XUVDC(a) = XUVDC adjusted using NFUVDC, XUVDC(b) = XUVDC adjusted using NFPDC. $Significant at 5% level. @ignificant at 1% level.
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WORLD DEVELOPMENT Table 2. Trends in manufactures terms of trade, share of nonferrous exports (SITC 68) in total (SITC 5-8) manufactured exports and country share in total sample exports of selected DCs. Trend rate of NBTT NBTT(a)* NBWb)t (1) (2) Argentina Bolivia Brazil Caribbean Chile China Ecuador Egypt Ghana Hong Kong India Indonesia Kenya Korea Malaysia Mexico
1.56j 2.76$ -2.65 1.02$ -5.18$ a.32 -1.14$ 3.37$ 0.37 0.78
Morocco
-5.04$
-7.10$
Nigeria Pakistan Paraguay Peru Philippines Singapore Taiwan Thailand Tunisia Uruguay Venezuela Yugoslavia
0.3 1 3.61$ -0.24 -5.19$ -2.41 0.78 a.60
-0.87
1.78$ 0.06 -4.85 0.07 0.94 -1.56
1.54$ -4.38$ 1.13$ -1.90$ a.3 1
a.94 0.68 -9.56 -3.88 -5.91$ -6.71 -2.11$ -0.08 -1.63 -2.53 0.84 -3.61 -12.13 -1.16$ 1.60 -2.21
1.96 -1.04 -6.33# A.99 0.28 -3.87 0.37 -8.26$ -0.66 -3.32$ -1.60
SITC 68 Share (%a) (3)
Share in total sample exports (%) (4)
6.41 97.62 4.40 0.00 83.19 1.98 0.00 0.00 93.75 1.16 0.17 11.42 0.01 0.46 12.57 7.17
1.25 0.13 8.64 0.14 1.13 6.44 0.01 0.19 0.15 10.17 3.16 1.80 0.05 20.11 3.63 5.23
7.42
0.33
0.00 0.00 0.03 61.97 32.91 0.00 0.00 8.37 0.00 0.00 84.72 5.89
0.03 1.27 0.01 0.59 0.54 4.41 20.48 2.08 0.54 0.15 0.94 6.36
Source: Columns 1 and 2: Sarkar and Singer (1991). Tables 4 and 5. Columns 3 and 4 estimated using data for 1984 and 1985 obtained from UN, International Trade Yearbook.
*NBlT(a): The index of net barter terms of trade derived from the unit value index of manufactured exports of the given country and the unit value index of its own manufactured imports. tNBTT(b): The index of net barter terms of trade derived from the unit index of manufactured exports of the given country and the unit value index of manufactured exports of the United States. $Significant at 5% level or better.
gest a close negative relationship
between the degree of dependence on nonferrous metal for export earnings and S-S trend rate estimates.
3. PITFALLS
IN DATA ANALYSIS
Even if we ignore the basic limitations in data, the country-level results do not seem to warrant the authors’ conclusion that they “confirm the results of the aggregate analysis” (p. 338). In particular, there are two major pitfalls in their analysis of these results. First, the summary measure used to compare countrylevel trend rates with the aggregate estimate is the
simple (unweighted) average which implicitly treats each country case as an equally important test case. Thus, small exporting countries with high negative trend rates (e.g., Chile, Kenya, Peru and Tunisia) receive the same weight as large exporters with smaller trend rates (e.g., Taiwan, Korea, Hong Kong and Singapore). (Compare the estimates in columns 1 and 2 with export shares in column 4 in Table 2). Second, without paying attention to the statistical significance (i.e. without considering whether a given coefficient is significantly different from zero), trend rates for all countries are included at face value in calculating this unweighted average. According to estimates based on NBTT series
SARKAR-SINGER
derived by dividing the export unit value index of each country by its own import unit value index (column 1 in Table 2), only 14 out of 29 sample countries exhibit trend rates which are statistically different from zero. When the statistically insignificant coefficients are legitimately treated as zeros, these estimates give an overall simple average of only -0.2 1% (as against the S-S estimate of 4.65%) and, worse still, a weighted average of almost zero (-0.01%).8 The results based on the alternative NBTT series (Table 2, column 2) are even less supportive of the hypothesis at hand. In this case, 22 of the 29 sample countries show trend rates which are not statistically different from zero and, when these rates are set at zero, the weighted average turns out to be +O.Ol%. All in all, if we legitimately consider country-level estimates more appropriate on grounds of lower aggregation bias, then the S-S results seem to run counter to the hypothesis that they painstakingly attempt to support. In order to make inference as to the movement of the net factorial terms of trade (NFIT) (i.e. NBTT adjusted for relative factor productivity), the authors compare their aggregate trend rate (-1%) with UN estimates of growth of labour productivity in total (i.e. both import-substituting and export-oriented) manufacturing of DCs and ICs during the two subperiods 1960-70 and 1970-80 (their Table 2). The latter estimates show a “widening gap in the growth of labour productivity in manufacturing industry between the centre and the periphery” (p. 335). The authors therefore conclude that “even if we accept trendlessness (in NBTT), . trade in manufactures contributes to increased inequality in the distribution of gains from trade between the periphery and the centre” (p. 335). The validity of this interpretation depends crucially on the implicit assumption that productivity gap (if there was any) between export-oriented and importsubstituting industries remained unchanged over the sample period. One can cast serious doubt, however, on this assumption in the light of the available literature on the link between foreign trade regimes and economic development in DCs. There is ample evidence that the efficiency with which all factors are employed in manufacturing improves with export orientation and low factor productivity and policy emphasis on “forced” import substitution go hand in hand. Under import-substitution, for high-cost and low-cost firms alike, output expansion is mostly hmited by the growth of the domestic market. Therefore, industry composition is likely to change less rapidly in favor of the firms with high productivity growth. By contrast, with a regime biased toward exports, the firms that survive and expand will be those that succeed in competing in international markets. Over time,
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RESULTS
therefore, the net result is likely to be a mix of firms and industries more heavily weighted toward low-cost activities (Krueger, 1978 and 1990). In this context, the authors’ inference about the behavior of NFTT for DCs manufactured exports appears, at best, conjectural. Perhaps the strongest empirical evidence reported in this paper relates to the behavior of the income terms of trade (ITT) (or the index of import purchasing power of exports). According to S-S estimates, the ITT for manufacturing exports from DCs during 1970-87 was 10% as compared with a rate of 6% for ICs.Thus the relative income terms of trade of the two regions showed an upward movement at an annual rate of around 4%. This means that even if we take the S-S estimate of -1% deterioration in NBTT in face value, the superior rate of growth of manufactured export volume has overcompensated that deterioration in terms of capacity to import. Surprisingly the authors place little emphasis on this finding saying that it is “beyond the scope of the paper” (p. 338). One of the overriding objectives of export-led industrialization in the developing world is to lessen the balance-of-payments constraint on the economic expansion in these countries. The massive increase in import purchasing power of exports reported by S-S would have enabled DCs to expand their production base through the importation of developmental imports while reducing dependence on costly (both financially and in terms of policy autonomy) foreign financing. In this context, one can even consider a deterioration in the NBTT as a desirable development because “declining NBTT, after all, gives a country a competitive edge that enables it to export more and to reap larger gains from foreign trade” (Streeten, 1987, p. 198).’
4. CONCLUSION The Sarkar-Singer paper is undoubtedly an important one in that it places an important issue on the agenda. It is for this reason that we have subjected their data and analysis to rigorous scrutiny. Our alternative NBTT trend estimates based on appropriately adjusted data and an alternative interpretation of S-S results at the country level strongly suggest that, during the period under study, the terms of trade for manufactured exports from DCs has been basically trendless. It appears that through the expansion of manufactured good exports, DCs as a group have been able to achieve significant gains in import purchasing power without generating any significant adverse impact on their NBTT.
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NOTES 1. For instance, the share of manufactured goods in nonfuel exports of DCs increased from 15% in 1963 to 62% in 1987 (Balassa, 1990, p. 3). Although most low-income countries still depend on primary products for the bulk of their export earnings, the identification of DCs generally as primary commodity exporters has certainly lost much of its relevance over the years. 2. For a useful summary of these limitations and a detailed listing of the related literature see Lipsey Molinen and Kravis (I 990). 3. By inspecting detailed export records given in UN, Series D country trade records for five arbitrarily selected countries (Malaysia, Thailand, Sri Lanka, South Korea and India) for 1984 and 1985, we found that quantity figures are available only for commodities accounting for 4&60% of total value of manufactured exports. More importantly, it was found that the incidence of nonreporting was greater among products belonging to SITC Sections 7 (machinery and transport Equipment) and SITC 8 (miscellaneous goods) which are usually the most dynamic product lines. Thus, it may be that the degree of reliability of aggregate unit value indexes for DCs tends to decline over time alone with export success. Of course, the bias in NBTT resulting from this data problem can go either way. 4. See Keesing (1979, pp. 35-36) for further discussion this limitation of the UN unit value index.
on
During the sample period used by S-S (1970-87), mean percentage share of SITC 68 exports in total SITC 5-8 exports was 12% for DCs and 3% for ICs. The DC share was as high as 28% at the beginning of the sample period and it declined gradually reflecting rapid export diversification. In the 1980s it varied between 9% and 7%. The IC share remained within the narrow range of 4.2-2.6% throughout the period. 5.
6. I owe this point to a referee of this journal. 7. Bolivia seems to be an outlier; the positive and statistically significant trend rate reported by S-S is not consistent with overwhelming reliance of this country on SITC 68 exports (97.6) and our 4.4% trend rate estimate (Table 1) for this commodity category. 8. The weights used are the individual country shares in total sample exports. Since the major focus of S-S is on the NBTT between DCs and ICs as two separate country groups (rather than the average NBTT experience of individual DCs), the export-weighted average is obviously more appropriate than the simple average as the summary measure of country-level results. 9. There is convincing empirical evidence that the rate of expansion of manufactured exports from DCs in IC markets is negatively related to changes in their prices relative to prices of manufactured good exports of ICs (Balassa, 1990; Grossman, 1982).
REFERENCES Balassa, Bela, “Trends in developing country exports, 1963-88,” Paper presented at the Conference on the Atlantic Economic Association (Williamsburg: October 11-13, 1990). Grossman, Gene M., “Import competition from developing countries,” Rev&v of Economics and Statistics, Vol. 64, No. 2 (1982). pp. 271-281. International Monetary Fund, International Financial Stafisfics (Washington DC: IMF various issues). Keesing, Donald B., “World trade and output of manufactures: Structural trends and developing countries’ World Bank Working Paper No. 316 exports,” (Washington, DC: World Bank, 1979). Krueger, Anne 0.. Foreign Trade Regimes and Economic Development: Liberalization Attempts and Consequences (Cambridge, MA: Balinger, 1978). Kru,eger, Anne O., “Trade policy as an input to developmerit,” in Perspective on Trade and Development (New York: Harvester Wheatsheaf, 1990), pp. 95-102. Lipsey, Robert E., Linda Molineri and Irvin B. Kravis, “Measurement of prices and price competitiveness in international trade in manufactured goods” Working Paper No. 3442 (Cambridge, MA: National Bureau of Economic Research, 1990). Prebisch, Raul, The Economic Development of Latin America and Its Principal Problems (New York: UN
Commission for Latin America, 1950). Sarkar, Prabirjit, and Hans W. Singer, “Manufactured exports of developing countries and their terms of trade since 1965,” World Development, Vol. 19, No. 4 (April 1991) pp. 333-340. Singer, Hans W., “The distribution of gains between investing and borrowing countries,” American Economic Reviena, Vol. 40, No. 2 (June 1950). pp. 473485. Singer, Hans W., “Terms of trade” in John Eatwell, Murray Milgate and Peter Newman (Eds.), The NM Palgrave: A Dictionary ofEconomic. (London: Macmillan, 1987), pp. 626628. Streeten, Paul, “World trade in agricultural commodities and the terms of trade with industrial goods” in Hans W. Singer and Naleem Hatti (Eds.), Internarional Commodity Policy, Part 1 (New Delhi: Ashish Publishing House, 1987) pp. 1988218. Thirlwall, Anthony P., and .I. Bergevin, “Trends, cycles and asymmetries in the terms of trade of primary commodities from developed and less developed countries,” World Development, Vol 13, No. 7 (July 1985). pp. 805-8 17. United Nations, International Trade Yearbook (New York: United nations, UN various years). United Nations, Monthly Bulletin of Stutistics (New York: United Nations, various issues).
SARKAR-SINGER
APPENDIX: Export unit value indexes of manufactured exports (XUVDC and XUVIC) come from UN, Monrhly Bulletin of Sratistics (December issues of 1977, 1983, 1987 and 1991). The price index for nonferrous metal (NFPDC) is from Thirlwall and Bergevin (1985). Appendix (for 1975-80) and UN, Monthly Bulletin ofStatistics (December issues of 1982, 1985 and 1990) for the rest of the period. For each index, the series for 1970-75 was spliced to the 1980-based series for 1975-87. The unit value index for nonferrous metal for DCs (NFUVDC) was constructed using SITC three-digit data of nonferrous metal exports from the major exporting countries. The data come from UN, International Trade Yearbook supplemented with IMF, International Financial Sratistics (for data on copper exports from Chile). The commodity/country coverage of the index is: copper (SITC 682): Peru, Chile, Yugoslavia; aluminium (SITC 684): Yugoslavia; lead (SITC 685): Peru, Mexico, Morocco; zinc (SITC 686): Peru, Mexico, Yugoslavia; tin (SITC 687): Bolivia, Thailand, Malaysia, Indonesia. The choice of the sample was dictated by data availability. During the sample period, however, total sample exports on average accounted for 52% of total SITC 68 exports from DCs.
RESULTS
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Since XUVDC is a current period weighted index of individual country indexes, we choose to construct NFUVDC also using current period weights to ensure comparability. We first converted unit value series for three-digit exports from each sample country into indexes with 1980 = 100. These country-level indexes were then combined to form NFUVDC using respective current (annual) value shares in total sample exports. Finally, NFPDC and NFUVDC were purged from XUVDC using current (annual) shares of total SITC 68 exports in total value of SITC 5-8 exports from DCs to derive XPDC(a) and XPDC(b) series. The export shares used for this purpose were obtained from the UN, Monthly Bull&n ofStatistics (May issues of 1977, 1983 and 1989). As a referee has correctly pointed out, since XUVDC is a weighted average of unit value indexes of selected individual countries, ideally we should have used the share of SITC 68 in total SITC 5-8 exports of these countries. The required data, however, are not readily available and we consider our data choice as a highly acceptable short cut. According to our calculation for two selected years (1975 and 1985), the countries covered by the UN index (as listed in S-S Table 3) accounted for over 90% of both total SITC 5-8 and SITC 68 exports from DCs.
Manufactured
0305-750X/93 $6.00 + 0.00 0 1993 Pergamon Press Ltd
1993.
Exports From Developing Countries
and Their Terms of Trade: A Reexamination Sarkar-Singer Results
of the
PREMACHANDRA ATHUKORALA* La Trobe University, Bundoora, Victoria, Australia Summary. Sarkar and Singer (1991) argue that the terms of trade for exports of manufactures from developing countries (DCs), like that for their primary commodity exports, have manifested a long-term trend favoring the importing developed countries. We contend here that the authors have not paid adequate attention to appropriately adjusting the data and that they have misinterpreted the results. When these limitations are taken into account, a sound basis exists for the conclusion that, through rapid expansion of manufactured exports, DCs as a group have achieved significant gains in import purchasing power without generating adverse impact on the net barter terms of trade.
1. INTRODUCTION One of the most influential views in the postwar development policy debate has been the PrebischSinger hypothesis concerning a structural tendency for the net barter terms of trade (NB’IT) of developing countries (DCs) to deteriorate in their dealings with the industrialized countries (KS). Prebisch (1950) and Singer (1950) launched this hypothesis at a time when the export structure of DCs was dominated by primary products. Reflecting this initial condition, the debate on the long-term deterioration in NBTT has been carried out assuming a close overlap between the NBTT of primary commodities relative to manufactures and the NBTT of DCs relative to ICs. Since about the late 1960s there has, however, been a continuous and considerable shift in the export structure of DCs away from primary commodities and toward manufactured goods.’ In this context, it is pertinent to pose the question whether this emerging trade pattern has allowed these countries to escape unequal exchange relations with ICs. In a recent synthesis of the postwar terms of trade debate, Singer (1987) addresses this issue on a priori grounds. He comes up with the proposition that despite the shift in the commodity composition of exports, the NBTT of DCs would continue to deteriorate because “the type of manufactures exported by these countries in relation to the types of manufactures exported by ICs share some of the disadvantages pointed out by Prebisch-Singer for primary commodities in relation to manufactures” (p. 628). In a recent article in this journal (Vol. 19, No. 4, pp. 333-340)
Sarkar and Singer (henceforth S-S) attempt to test this hypothesis by examining the behavior of NBTT for total manufactured exports from DCs (during 1970-87) and manufactured exports from 29 individual DCs (during 1965-85). They claim that both aggregate and country-level results support the hypothesis. The Prebisch-Singer thesis was one of the main rationales for the widespread adoption of import-substitution industrialization in the developing world in the immediate postwar period. While many disappointments with this strategy have subsequently led to a significant shift in development ideology in favor of export-oriented industrialization, trade policy regimes of the majority of DCs are still basically “inward” looking in nature. As a new twist to the original Prebisch-Singer view, the S-S analysis seems to have a greater appeal to many in the developing world who advocate a continuation, or return to, the inward-looking development strategies of the 1950s. Given this policy significance, the purpose of this note is to subject the analysis of S-S to close scrutiny. We reestimate the aggregate NBTT trend equation reported in S-S with appropriately adjusted data (Section 2) and reinterpret their country-level results in order to rectify some pitfalls in the original interpretation (Section
3).
*The author is indebted to Lee Smith for excellent research assistance and to Jayant Menon for careful reading of the draft of the paper. Final revision accepted: February 25, 1993.
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2. DATA LIMITATIONS The aggregate NBTT series used by S-S is the ratio of the unit value index of manufactured goods exports from DCs to the unit value index for manufactured goods exports from ICs countries. The two data series come from the UN, Monthly Bulletin ofStatistics. The country level analysis makes use of two alternative NBTT series for each country based on unpublished data obtained from the UN Statistical Office. One is derived by dividing the unit value index of manufactured goods exports of the country by its own unit value index of manufactured good imports and the other by dividing the former by the manufactured good export unit value index of the United States. Limitations of unit value indexes as proxy measures of the “true” price changes of manufactured goods are by now well known in the literature.2 Unit values are values per unit of quantity at selected level of a given commodity classification, usually at the four-digit level of the Standard International Trade Classification (SITC). Unlike primary commodities, manufactured goods tend to be highly heterogeneous even at a very fine level of commodity disaggregation. Changes in a unit value index compiled by combining various unit values derived at a selected level of a given commodity classification are, therefore, influenced not only be “genuine” price changes but also by changes in the commodity mix. In other words, changes in the commodity mix can generate spurious price movements. This bias might be particularly severe for aggregate unit value indexes for DCs as their export structures are subject to significant changes in line with policy shifts. Unit values are defective not only because of this ambiguity of computation but also because quantities used to compute unit values are usually available only for a limited number of categories at the four-digit SITC level of aggregation. Therefore unit values for aggregates such as total manufactures from a given country, or worse still for a group of countries, are highly unreliab1e.j S-S do not mention these limitations. It may be that they simply assumed the errors to cancel out as they are relevant for both the numerator and the denominator of their NBTT indexes. Even if we consider such an assumption to be reasonable, the data used by S-S still suffer from at least two major limitations which are likely to have infused an undue downward bias into NBTT trend rate estimates. First, the aggregate UN export unit value indexes for both DCs and ICs relate to total rather than intergroup exports of these two country groups. Thus the derived NBTT index is not a pure indicator of the changes of gains in trade between the periphery and the centre. We admit that the index for DCs is a reasonable proxy for their exports to the ICs since intraregional exports count for only about 25% of the total.
This is not, however, the case with the index for ICs. Only about 20% of manufactured exports from ICs are absorbed by DCs. Furthermore, the commodity composition of their exports to DCs is believed to be significantly different from that of their intraregional exports. It is, therefore, conceivable that, in the aggregate, relative price movements faced by DC buyers of exports from ICs are different from those faced by IC buyers. The authors do mention this limitation of their data, but they fail to suggest the direction of the bias involved. The results of a recent NBER study of the price behavior of manufactured exports form ICs (Lipsey, Molineri and Kravis, 1990) permit us to surmise that the bias would have been in favor of the deteriorating NBTT trend hypothesis. On the basis of carefully constructed price (not unit value) indexes for total manufactured exports to DCs, the United States, Japan and Germany during 195048, this study concludes that “in most cases, exports to the world (and therefore exports to the developed countries to a greater extent) increased more rapidly in price than exports to developing countries” (p. 16). Second, for this type of a study, the UN unit value index for DCs has a serious limitation emanating from the nature of its commodity coverage. The definition of manufactured goods used in constructing this index is the sum of SITC sections 5-8, and therefore the index is affected by price movements of nonferrous metal products (SITC 68).4 As far as exports from DCs are concerned, this commodity category is composed predominantly of mineral products (mostly unprocessed) such as copper, tin, zinc, lead and aluminum, whose price movements tend to be significantly different from those of standard manufactured goods. Moreover, as compared with ICs, this commodity group accounts for a greater share of total SITC 5-8 exports from DCs5 Because of these reasons, the standard practice of GATT, World Bank and International Monetary Fund (IMF) as well as most independent researchers is to define manufactured goods as “SITC 5 through 8 less SITC 68.” In order to test the bias in S-S estimate resulting from the nature of commodity coverage, we choose to reestimate the NBTT trend equation after purging nonferrous metals from the UN unit value index of manufactured exports from DCs (henceforth denoted XUVDC). In a recent analysis of manufactured exports from DCs, Balassa (1990) uses the readily available UN price index of nonferrous metal exports from these countries (NFPDC) for a similar adjustment of XUVDC. This practice, despite its empirical expediency, suffers from the incompatibility of true price indexes and unit value indexes in terms of reflecting price movements.h Unit values normally tend to move less quickly than market prices owing to various factors such as transportation and recording lags, long-term contracts, and formal and informal supplier-customer links. The use of NFPDC may,
SARKAR-SINGER
therefore, lead to over adjustment (under adjustment) of XUVDC during period of falling (rising) prices. Mindful of this limitation, we constructed a fresh unit value index for nonferrous metal exports from DCs countries (NFUVDC). We adjusted XUVDC, however, using both NFPDC and NFUVDC to yield two alternative (adjusted) NBTT series in the hope that the comparative results may provide useful guidance for further research in this area. The trend rate estimates for the two NBTT series, together with the original S-S estimate, are reported in Table 1. To facilitate the interpretation of the results, trend rates of NBTT for nonferrous metal exports are also reported. During the period under study, NBTT for nonferrous metal exports from DCs measured by the UN price index and our unit value index deteriorated at an annual compound rate of 4.4% and 3.6% respectively. When this commodity category is excluded from the commodity coverage of the UN unit value index, the trend coefficients of the two adjusted NBT’I series turn out to be -0.2% and -0.1%
Table 1.
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respectively, and they are not statistically different from zero in terms of the standard t-test. These estimates clearly suggest that the statistically significant -1% trend rate reported by S-S merely reflects adverse price movements experienced by nonferrous metals. It is important to note that the alternative NBTT trend estimates are remarkably insensitive to the type of index used to measure price movements of nonferrous metal exports. To illustrate the sensitivity of country-level results to the price movements in SITC 68 exports, the trend rate estimates of S-S for individual countries are compared with shares of SITC 68 exports in total (SITC 5-8) exports in Table 2. Note that the major nonferrous metal exporting countries in the S-S sample Chile, Ghana, Indonesia, Peru, the Philippines and Venezuela all have negative trend rates.’ Furthermore, most of the statistically significant negative trend rates of very high numerical magnitude which receive much emphasis in S-S’s discussion are shown by these countries. Thus, the data clearly sug-
Trends in net barter of trade for exports of manufactures als of DCs vis-d-vis ICs, 1970~87*
Commodity category? Manufactures: SITC 5-8 XUVDC/XUVIC Nonferrous metals: SITC 68 NFPDV(a)/XUVIC NFPDV(b)/XUVIC
Manufactures: SITC 5-8 less SITC 68 XUVDC(a)/XUVIC XUVDC(b)/XUVIC
Annual compound rate of change (%)
R2
and non-ferrous
DW
-l.OO$
0.41
1.45
-3.609 (5.65) -4.430 (7.56)
0.67
1.72
0.76
I .75
a.2
0.06
1.23
-0.1
met
1.03
Estimate manufactures defined as SITC 5-8 (Item 1) is from Sarkar and Singer (1991) Table 1. Others are author’s estimates. The data sources are listed, and the procedure followed in constructing NFUVDC series and deriving XPDC(a) and XPDC(b) series is explained in the Data Appendix. Notes:.*Trend rates are obtained by fitting (using OLS) the equation: log NBTT = a + rT, where T is the time variable and the estimate of r is the trend rate. The t ratios are given in brackets. t Variable notations: XUVDC = original (unadjusted) UN export unit value index for DCs, XUVIC = UN export unit value index for industrial countries, NFUVDC = unit value index (specifically constructed for this study) for non-ferrous metal exports (SITC 68) from DCs, NFPDC = UN price index for non-ferrous metal exports from DCs, XUVDC(a) = XUVDC adjusted using NFUVDC, XUVDC(b) = XUVDC adjusted using NFPDC. $Significant at 5% level. @ignificant at 1% level.
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WORLD DEVELOPMENT Table 2. Trends in manufactures terms of trade, share of nonferrous exports (SITC 68) in total (SITC 5-8) manufactured exports and country share in total sample exports of selected DCs. Trend rate of NBTT NBTT(a)* NBWb)t (1) (2) Argentina Bolivia Brazil Caribbean Chile China Ecuador Egypt Ghana Hong Kong India Indonesia Kenya Korea Malaysia Mexico
1.56j 2.76$ -2.65 1.02$ -5.18$ a.32 -1.14$ 3.37$ 0.37 0.78
Morocco
-5.04$
-7.10$
Nigeria Pakistan Paraguay Peru Philippines Singapore Taiwan Thailand Tunisia Uruguay Venezuela Yugoslavia
0.3 1 3.61$ -0.24 -5.19$ -2.41 0.78 a.60
-0.87
1.78$ 0.06 -4.85 0.07 0.94 -1.56
1.54$ -4.38$ 1.13$ -1.90$ a.3 1
a.94 0.68 -9.56 -3.88 -5.91$ -6.71 -2.11$ -0.08 -1.63 -2.53 0.84 -3.61 -12.13 -1.16$ 1.60 -2.21
1.96 -1.04 -6.33# A.99 0.28 -3.87 0.37 -8.26$ -0.66 -3.32$ -1.60
SITC 68 Share (%a) (3)
Share in total sample exports (%) (4)
6.41 97.62 4.40 0.00 83.19 1.98 0.00 0.00 93.75 1.16 0.17 11.42 0.01 0.46 12.57 7.17
1.25 0.13 8.64 0.14 1.13 6.44 0.01 0.19 0.15 10.17 3.16 1.80 0.05 20.11 3.63 5.23
7.42
0.33
0.00 0.00 0.03 61.97 32.91 0.00 0.00 8.37 0.00 0.00 84.72 5.89
0.03 1.27 0.01 0.59 0.54 4.41 20.48 2.08 0.54 0.15 0.94 6.36
Source: Columns 1 and 2: Sarkar and Singer (1991). Tables 4 and 5. Columns 3 and 4 estimated using data for 1984 and 1985 obtained from UN, International Trade Yearbook.
*NBlT(a): The index of net barter terms of trade derived from the unit value index of manufactured exports of the given country and the unit value index of its own manufactured imports. tNBTT(b): The index of net barter terms of trade derived from the unit index of manufactured exports of the given country and the unit value index of manufactured exports of the United States. $Significant at 5% level or better.
gest a close negative relationship
between the degree of dependence on nonferrous metal for export earnings and S-S trend rate estimates.
3. PITFALLS
IN DATA ANALYSIS
Even if we ignore the basic limitations in data, the country-level results do not seem to warrant the authors’ conclusion that they “confirm the results of the aggregate analysis” (p. 338). In particular, there are two major pitfalls in their analysis of these results. First, the summary measure used to compare countrylevel trend rates with the aggregate estimate is the
simple (unweighted) average which implicitly treats each country case as an equally important test case. Thus, small exporting countries with high negative trend rates (e.g., Chile, Kenya, Peru and Tunisia) receive the same weight as large exporters with smaller trend rates (e.g., Taiwan, Korea, Hong Kong and Singapore). (Compare the estimates in columns 1 and 2 with export shares in column 4 in Table 2). Second, without paying attention to the statistical significance (i.e. without considering whether a given coefficient is significantly different from zero), trend rates for all countries are included at face value in calculating this unweighted average. According to estimates based on NBTT series
SARKAR-SINGER
derived by dividing the export unit value index of each country by its own import unit value index (column 1 in Table 2), only 14 out of 29 sample countries exhibit trend rates which are statistically different from zero. When the statistically insignificant coefficients are legitimately treated as zeros, these estimates give an overall simple average of only -0.2 1% (as against the S-S estimate of 4.65%) and, worse still, a weighted average of almost zero (-0.01%).8 The results based on the alternative NBTT series (Table 2, column 2) are even less supportive of the hypothesis at hand. In this case, 22 of the 29 sample countries show trend rates which are not statistically different from zero and, when these rates are set at zero, the weighted average turns out to be +O.Ol%. All in all, if we legitimately consider country-level estimates more appropriate on grounds of lower aggregation bias, then the S-S results seem to run counter to the hypothesis that they painstakingly attempt to support. In order to make inference as to the movement of the net factorial terms of trade (NFIT) (i.e. NBTT adjusted for relative factor productivity), the authors compare their aggregate trend rate (-1%) with UN estimates of growth of labour productivity in total (i.e. both import-substituting and export-oriented) manufacturing of DCs and ICs during the two subperiods 1960-70 and 1970-80 (their Table 2). The latter estimates show a “widening gap in the growth of labour productivity in manufacturing industry between the centre and the periphery” (p. 335). The authors therefore conclude that “even if we accept trendlessness (in NBTT), . trade in manufactures contributes to increased inequality in the distribution of gains from trade between the periphery and the centre” (p. 335). The validity of this interpretation depends crucially on the implicit assumption that productivity gap (if there was any) between export-oriented and importsubstituting industries remained unchanged over the sample period. One can cast serious doubt, however, on this assumption in the light of the available literature on the link between foreign trade regimes and economic development in DCs. There is ample evidence that the efficiency with which all factors are employed in manufacturing improves with export orientation and low factor productivity and policy emphasis on “forced” import substitution go hand in hand. Under import-substitution, for high-cost and low-cost firms alike, output expansion is mostly hmited by the growth of the domestic market. Therefore, industry composition is likely to change less rapidly in favor of the firms with high productivity growth. By contrast, with a regime biased toward exports, the firms that survive and expand will be those that succeed in competing in international markets. Over time,
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therefore, the net result is likely to be a mix of firms and industries more heavily weighted toward low-cost activities (Krueger, 1978 and 1990). In this context, the authors’ inference about the behavior of NFTT for DCs manufactured exports appears, at best, conjectural. Perhaps the strongest empirical evidence reported in this paper relates to the behavior of the income terms of trade (ITT) (or the index of import purchasing power of exports). According to S-S estimates, the ITT for manufacturing exports from DCs during 1970-87 was 10% as compared with a rate of 6% for ICs.Thus the relative income terms of trade of the two regions showed an upward movement at an annual rate of around 4%. This means that even if we take the S-S estimate of -1% deterioration in NBTT in face value, the superior rate of growth of manufactured export volume has overcompensated that deterioration in terms of capacity to import. Surprisingly the authors place little emphasis on this finding saying that it is “beyond the scope of the paper” (p. 338). One of the overriding objectives of export-led industrialization in the developing world is to lessen the balance-of-payments constraint on the economic expansion in these countries. The massive increase in import purchasing power of exports reported by S-S would have enabled DCs to expand their production base through the importation of developmental imports while reducing dependence on costly (both financially and in terms of policy autonomy) foreign financing. In this context, one can even consider a deterioration in the NBTT as a desirable development because “declining NBTT, after all, gives a country a competitive edge that enables it to export more and to reap larger gains from foreign trade” (Streeten, 1987, p. 198).’
4. CONCLUSION The Sarkar-Singer paper is undoubtedly an important one in that it places an important issue on the agenda. It is for this reason that we have subjected their data and analysis to rigorous scrutiny. Our alternative NBTT trend estimates based on appropriately adjusted data and an alternative interpretation of S-S results at the country level strongly suggest that, during the period under study, the terms of trade for manufactured exports from DCs has been basically trendless. It appears that through the expansion of manufactured good exports, DCs as a group have been able to achieve significant gains in import purchasing power without generating any significant adverse impact on their NBTT.
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NOTES 1. For instance, the share of manufactured goods in nonfuel exports of DCs increased from 15% in 1963 to 62% in 1987 (Balassa, 1990, p. 3). Although most low-income countries still depend on primary products for the bulk of their export earnings, the identification of DCs generally as primary commodity exporters has certainly lost much of its relevance over the years. 2. For a useful summary of these limitations and a detailed listing of the related literature see Lipsey Molinen and Kravis (I 990). 3. By inspecting detailed export records given in UN, Series D country trade records for five arbitrarily selected countries (Malaysia, Thailand, Sri Lanka, South Korea and India) for 1984 and 1985, we found that quantity figures are available only for commodities accounting for 4&60% of total value of manufactured exports. More importantly, it was found that the incidence of nonreporting was greater among products belonging to SITC Sections 7 (machinery and transport Equipment) and SITC 8 (miscellaneous goods) which are usually the most dynamic product lines. Thus, it may be that the degree of reliability of aggregate unit value indexes for DCs tends to decline over time alone with export success. Of course, the bias in NBTT resulting from this data problem can go either way. 4. See Keesing (1979, pp. 35-36) for further discussion this limitation of the UN unit value index.
on
During the sample period used by S-S (1970-87), mean percentage share of SITC 68 exports in total SITC 5-8 exports was 12% for DCs and 3% for ICs. The DC share was as high as 28% at the beginning of the sample period and it declined gradually reflecting rapid export diversification. In the 1980s it varied between 9% and 7%. The IC share remained within the narrow range of 4.2-2.6% throughout the period. 5.
6. I owe this point to a referee of this journal. 7. Bolivia seems to be an outlier; the positive and statistically significant trend rate reported by S-S is not consistent with overwhelming reliance of this country on SITC 68 exports (97.6) and our 4.4% trend rate estimate (Table 1) for this commodity category. 8. The weights used are the individual country shares in total sample exports. Since the major focus of S-S is on the NBTT between DCs and ICs as two separate country groups (rather than the average NBTT experience of individual DCs), the export-weighted average is obviously more appropriate than the simple average as the summary measure of country-level results. 9. There is convincing empirical evidence that the rate of expansion of manufactured exports from DCs in IC markets is negatively related to changes in their prices relative to prices of manufactured good exports of ICs (Balassa, 1990; Grossman, 1982).
REFERENCES Balassa, Bela, “Trends in developing country exports, 1963-88,” Paper presented at the Conference on the Atlantic Economic Association (Williamsburg: October 11-13, 1990). Grossman, Gene M., “Import competition from developing countries,” Rev&v of Economics and Statistics, Vol. 64, No. 2 (1982). pp. 271-281. International Monetary Fund, International Financial Stafisfics (Washington DC: IMF various issues). Keesing, Donald B., “World trade and output of manufactures: Structural trends and developing countries’ World Bank Working Paper No. 316 exports,” (Washington, DC: World Bank, 1979). Krueger, Anne 0.. Foreign Trade Regimes and Economic Development: Liberalization Attempts and Consequences (Cambridge, MA: Balinger, 1978). Kru,eger, Anne O., “Trade policy as an input to developmerit,” in Perspective on Trade and Development (New York: Harvester Wheatsheaf, 1990), pp. 95-102. Lipsey, Robert E., Linda Molineri and Irvin B. Kravis, “Measurement of prices and price competitiveness in international trade in manufactured goods” Working Paper No. 3442 (Cambridge, MA: National Bureau of Economic Research, 1990). Prebisch, Raul, The Economic Development of Latin America and Its Principal Problems (New York: UN
Commission for Latin America, 1950). Sarkar, Prabirjit, and Hans W. Singer, “Manufactured exports of developing countries and their terms of trade since 1965,” World Development, Vol. 19, No. 4 (April 1991) pp. 333-340. Singer, Hans W., “The distribution of gains between investing and borrowing countries,” American Economic Reviena, Vol. 40, No. 2 (June 1950). pp. 473485. Singer, Hans W., “Terms of trade” in John Eatwell, Murray Milgate and Peter Newman (Eds.), The NM Palgrave: A Dictionary ofEconomic. (London: Macmillan, 1987), pp. 626628. Streeten, Paul, “World trade in agricultural commodities and the terms of trade with industrial goods” in Hans W. Singer and Naleem Hatti (Eds.), Internarional Commodity Policy, Part 1 (New Delhi: Ashish Publishing House, 1987) pp. 1988218. Thirlwall, Anthony P., and .I. Bergevin, “Trends, cycles and asymmetries in the terms of trade of primary commodities from developed and less developed countries,” World Development, Vol 13, No. 7 (July 1985). pp. 805-8 17. United Nations, International Trade Yearbook (New York: United nations, UN various years). United Nations, Monthly Bulletin of Stutistics (New York: United Nations, various issues).
SARKAR-SINGER
APPENDIX: Export unit value indexes of manufactured exports (XUVDC and XUVIC) come from UN, Monrhly Bulletin of Sratistics (December issues of 1977, 1983, 1987 and 1991). The price index for nonferrous metal (NFPDC) is from Thirlwall and Bergevin (1985). Appendix (for 1975-80) and UN, Monthly Bulletin ofStatistics (December issues of 1982, 1985 and 1990) for the rest of the period. For each index, the series for 1970-75 was spliced to the 1980-based series for 1975-87. The unit value index for nonferrous metal for DCs (NFUVDC) was constructed using SITC three-digit data of nonferrous metal exports from the major exporting countries. The data come from UN, International Trade Yearbook supplemented with IMF, International Financial Sratistics (for data on copper exports from Chile). The commodity/country coverage of the index is: copper (SITC 682): Peru, Chile, Yugoslavia; aluminium (SITC 684): Yugoslavia; lead (SITC 685): Peru, Mexico, Morocco; zinc (SITC 686): Peru, Mexico, Yugoslavia; tin (SITC 687): Bolivia, Thailand, Malaysia, Indonesia. The choice of the sample was dictated by data availability. During the sample period, however, total sample exports on average accounted for 52% of total SITC 68 exports from DCs.
RESULTS
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Since XUVDC is a current period weighted index of individual country indexes, we choose to construct NFUVDC also using current period weights to ensure comparability. We first converted unit value series for three-digit exports from each sample country into indexes with 1980 = 100. These country-level indexes were then combined to form NFUVDC using respective current (annual) value shares in total sample exports. Finally, NFPDC and NFUVDC were purged from XUVDC using current (annual) shares of total SITC 68 exports in total value of SITC 5-8 exports from DCs to derive XPDC(a) and XPDC(b) series. The export shares used for this purpose were obtained from the UN, Monthly Bull&n ofStatistics (May issues of 1977, 1983 and 1989). As a referee has correctly pointed out, since XUVDC is a weighted average of unit value indexes of selected individual countries, ideally we should have used the share of SITC 68 in total SITC 5-8 exports of these countries. The required data, however, are not readily available and we consider our data choice as a highly acceptable short cut. According to our calculation for two selected years (1975 and 1985), the countries covered by the UN index (as listed in S-S Table 3) accounted for over 90% of both total SITC 5-8 and SITC 68 exports from DCs.