For a while now I want to do a post on the
Revealed Comparative Advantages of Greece. With all the talk about which
sectors have the capacity to propel Greece forward I think this is more topical
than ever.
In case you are not familiar with the Revealed
Comparative Advantage (RCA) you can read a rather succinct definition of it
here.
Of course, like all indicators, RCA does have some
flaws. In my humble opinion, one of these is the fact that the OECD calculates
it only for merchandise exports, while for a considerable number of countries,
their strengths lie in the services sectors. This is becoming increasing true
for “developed countries” which have de-industrialised considerably (I think
all the talking about the possible re-industrialisation of developed markets due to rising wages in China and other emerging markets is pre-mature for
their validity to be judged and maybe a “tiny” bit overblown). Another drawback
could be that the universe which is the base that the index is calculated on is
OECD countries only. Of course, these are just my personal views and it sure is
easier to tap your keyboard and criticize an indicator than it is to devise one
from scratch.
Quite a lot of charts in this post too so I
hope that you’ll bear with me...
Enough with the prologue, let’s move on to
our beloved Greece. Greece is one of the cases that the above indicator misses
out on quite a big part of its potential, since services exports are a bigger
chunk of total than they are for the EU.
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source: Eurostat |
|
source: Eurostat |
Another shortcoming, applying to Greece
particularly (especially at the time the RCA
was calculated) is that the Greek economy is the least export oriented among
the OECD crowd, hence, a sector that sports a few success stories can be characterized
as one that the country possesses a comparative advantage. Well, I’m more
skeptical about that. Finally, given how static (if one is charitable enough to
characterize it as such and not as declining) the Greek tradable sector was in
the 00s, one sector possessing a comparative advantage doesn’t mean that it
displays dynamism or that it is booming, it could merely mean that it is
declining in a slower pace than others (or that none other has emerged to take
its place). I will elaborate on that and try to overcome the “obstacle” that
the last point remarks on later in the post.
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source: World Bank, own calculations |
The last year that the OECD calculated the
RCA for is 2009. Of course it is “a bit” dated but we have to make do with what
we have. Here is the chart.
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source: OECD |
Greece’s comparative advantages lay in Food
Products, Beverages & Tobacco, Textiles, Chemicals, Non-Metallic Minerals
and Basic Metals. All segments are characterized by low technological content and
low added value.
It would be interesting to see where RCA for
the Euro Area 12 countries lay.
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source: OECD, own calculations |
RCAs for EA
12 countries cover most segments, with the exception of electrical and optical
equipment where the clustering of RCAs is rather low.
The
grouping of activities into segments is different from SITC or the other
classifications of merchandise exports.
To get a sense of the value added of each
segment in the next chart I’ve plotted the Export Unit Values for each one of them,
as far as the Eurozone is concerned. The Export Unit Values are considered a
measure of a product’s (perceived) quality. As such they are not a perfect
indicator of the product’s value added, since the import content (and some
other factors) for each one may vary; nonetheless this is an extremely useful
indicator.
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source: Euostat, own calculations |
As you can
see, the RCAs for Greece lay in the segments for which export unit values are
the lowest among the ones featured in the chart above.
Back to the opening paragraphs, when recounting
the shortcomings of the RCA as an indicator, I said that possessing an RCA does not
necessarily mean that the country is actually particularly competent in that niche. To get past that reef, we will use a filter, namely the Export UnitValues. Again this is not in any way a perfect measure for the stated purpose,
but which measure is perfect after all..?
The fact that the product classification used in
the RCA calculation is different from the SITC means that a few more charts are
needed here to take a tour of the product categories that Greece possesses a
RCA.
The first segment is Food and Live Animals.
Here Greece is ranked mid-table among the EU countries. Note were Italy, Portugal
and Spain are ranked, whose climates are similar to ours hence their produce in
the said niche could be similar to ours.
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source: Eurostat, own calculations |
Next, Beverages and Tobacco.
|
source: Eurostat, own calculations |
Here too,
Greece is placed in the middle of the ranking table.
Next chart
concerns Chemicals and related products. Greece lies almost at the very end of
the table.
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source: Eurostat, own calculations |
Finally, a
chart about Manufactured Goods classified by material (which include, among
others, textiles, Basic Metals and Non-metallic Minerals).
Here Greece
is ranked even lower, with the export unit values of its produce higher only
than those of Latvia’s.
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source: Eurostat, own calculations |
The charts
above portray in a crystal clear way, that the only niche where Greece’s
produce is not considered to be of very low quality is Food products, Beverages
and Tobacco.
A clarification, since I am sure that some
people may take this as an indication that Greek products are actually rather
cheap, hence their becoming cheaper is not desired or necessary. Actually, the
exact opposite is true; when competing in the lower quality segments, price-competitiveness
is the only channel through which you can differentiate your produce.
Moreover, since according to Eurostat data, in all
the sectors mentioned above, personnel costs comprise a non-negligible part of
total production value then producers (and as a result workers) in Greece are
in a severely handicapped position, with their products classified as
low-quality and wages-related costs being double of that of other countries. This
is a perfect illustration of what being stuck in a lose-lose situation actually
means.
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source: AMECO, own calculations |
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source: Eurostat |
This is an monstrously long post, so I hope I
didn’t lose you earlier and you got that far. To wrap this up, what the RCA,
with the additional filtering of Export Unit Values, tells us is that Greece’s
comparative advantages lay in low value-added and low technological content sectors.
Out of all these sectors, in my humble opinion, Greece is better positioned to
compete in the Food, Beverages & Tobacco segment, where its products are
considered to be of higher value and it may not take much to raise
value-added even further. The rest of the manufacturing sector currently does and will
probably keep finding it hard to compete since, its products are deemed to be
of rather low quality, while at the same time, it is very difficult
(economically and socially) for Greece to improve its cost-competitiveness
against low-cost countries.