Banque Nationale De Belgique Sa · EURONEXT:BNB

Banque Nationale De Belgique Sa — Investor Presentation (May 2012)

60 slides from Banque Nationale De Belgique Sa's investor presentation, May 2012

1. Slide 1: Export Destinations and Input Prices: Evidence from Portugal

   Export Destinations and Input Prices: Evidence from Portugal Paulo Bastos IADB, World Bank Joana Silva World Bank Eric Verhoogen Columbia University Preliminary May 2012

2. Slide 2: Introduction

   Introduction I There is mounting evidence of effects of exporting on firm behavior. I Productivity literature somewhat mixed (Clerides et al., 1998; Bernard and Jensen, 1999; Van Biesebroeck, 2005; De Loecker, 2007). I Evidence of effects on technology investments (Bustos, 2011; Lileeva and Trefler,

3. Slide 3: Introduction

   Introduction I There is mounting evidence of effects of exporting on firm behavior. I Productivity literature somewhat mixed (Clerides et al., 1998; Bernard and Jensen, 1999; Van Biesebroeck, 2005; De Loecker, 2007). I Evidence of effects on technology investments (Bustos, 2011; Lileeva and Trefler,

4. Slide 4: Introduction (cont.)

   Introduction (cont.) I A common approach in the literature is to model effects of exporting as operating through scale effects (Yeaple, 2005; Bustos, 2011). I Increase in sales volume with export entry induces firms to pay fixed costs of technology, R&D etc. I Suggests exports per se, not destinatio

5. Slide 5: Introduction (cont.)

   Introduction (cont.) I A common approach in the literature is to model effects of exporting as operating through scale effects (Yeaple, 2005; Bustos, 2011). I Increase in sales volume with export entry induces firms to pay fixed costs of technology, R&D etc. I Suggests exports per se, not destinatio

6. Slide 6: Introduction (cont.)

   Introduction (cont.) I Possible explanations for within firm-product price patterns: I Endogenous mark-ups: “pricing to market” I Differences in demand for quality: richer consumers more willing to pay for quality, firms raise quality of good sold to them (Linder, 1961; Hallak, 2006; Verhoogen, 2008

7. Slide 7: Introduction (cont.)

   Introduction (cont.) I Possible explanations for within firm-product price patterns: I Endogenous mark-ups: “pricing to market” I Differences in demand for quality: richer consumers more willing to pay for quality, firms raise quality of good sold to them (Linder, 1961; Hallak, 2006; Verhoogen, 2008

8. Slide 8: Introduction (cont.)

   Introduction (cont.) I Difficulty: quality is unobserved. Literature has relied on accumulation of indirect evidence: I Some sectors sell large volumes at high prices, suggesting that goods are high-quality (Hummels and Klenow, 2005; Hallak and Schott, 2011; Khandelwal, 2010) I Plant-level facts (Ku

9. Slide 9: Introduction (cont.)

   Introduction (cont.) I Strategy in this paper: I Use real-exchange-rate movements as instrument for export destination. I Look at effects of average destination income on prices of material inputs.

10. Slide 10: Introduction (cont.)

    Introduction (cont.) I Strategy in this paper: I Use real-exchange-rate movements as instrument for export destination. I Look at effects of average destination income on prices of material inputs. I Punchline: rich-country export share ↑ ⇒ input prices ↑ I We interpret results as supportive of qual

11. Slide 11: Introduction (cont.)

    Introduction (cont.) I Related paper: Brambilla et al. (forthcoming): I Brazilian devaluation generates exogenous variation in destination of exports for Argentinian firms. I Exports to rich countries lead to higher wages; exports per se do not.

12. Slide 12: Introduction (cont.)

    Introduction (cont.) I Related paper: Brambilla et al. (forthcoming): I Brazilian devaluation generates exogenous variation in destination of exports for Argentinian firms. I Exports to rich countries lead to higher wages; exports per se do not. I Value-added of current paper: I Have information on

13. Slide 13: Theory

    Theory I Goal: derive comparative-static predictions for how firm-level prices respond to real-exchange rate shocks, to guide empirical work. I Draws on ideas from existing models: I Melitz (2003) I Kugler and Verhoogen (2012), variant 1: complementarity between firm capability and input quality in

14. Slide 14: Theory (cont.)

    Theory (cont.) I Three countries: Home (h), North (n), South (s) I i indexes production location I j indexes destination market

15. Slide 15: Theory (cont.)

    Theory (cont.) I Three countries: Home (h), North (n), South (s) I i indexes production location I j indexes destination market I Three sectors: I Homogeneous-good “outside” sector. I Freely traded, produced by all countries. Pins down wages, wi . I Productivity in sector, hence wages, may vary acro

16. Slide 16: Theory (cont.)

    Theory (cont.) I Representative consumer: " # σ β  Z σ−1  σ−1 Uj = (q(ω)µj x(ω)) σ dω Z 1−β (1)  ω∈Ωj  I Z is consumption of homogeneous good. I q is quality of variety ω, chosen by firms. I µ is valuation of quality, differs across countries. j I Assume µn > µh > µs > 12

17. Slide 17: Theory (cont.)

    Theory (cont.) I Representative consumer: " # σ β  Z σ−1  σ−1 Uj = (q(ω)µj x(ω)) σ dω Z 1−β (1)  ω∈Ωj  I Z is consumption of homogeneous good. I q is quality of variety ω, chosen by firms. I µ is valuation of quality, differs across countries. j I Assume µn > µh > µs > 12 I Yields demand for e

18. Slide 18: Theory (cont.)

    Theory (cont.) I Intermediate-input sector: I Transforms unskilled labor into inputs of different qualities. I Can also be thought of as education sector, bundling labor units into skilled workers. I Production function: ` FI (`, c) = c I ` is units of effective labor. I c units of labor required to

19. Slide 19: Theory (cont.)

    Theory (cont.) I Final-good sector: I Firms pay investment wi fe to get “capability” draw, λ k I Pareto distribution: G (λ) = 1 − λλm , 0 < λm ≤ λ I Fixed cost: wi fij = wi f for i = j, = wi fx > wi f for i 6= j. I Iceberg trade cost: τ = τ for i 6= j, = 1 for i = j. ij I Capability λ affects produc

20. Slide 20: Theory (cont.)

    Theory (cont.) I First-order conditions for firm yield: 1 b cij∗ (λ) = (2µj − 1)− 2θ λ 2 1 b ∗ pIij (λ) = wi (2µj − 1)− 2θ λ 2 1 1 −θ b ∗ qij (λ) = 2− λ µj σ 1 b ∗ pOij (λ) = wi τij (2µj − 1)− 2θ λ 2 −a σ−1 Pj σ−1 ζj rij∗ (λ) = βwj Lj Φj λ wi τij where: 1 ζj := (σ − 1) b µj − +a >0 2 2µj −1 σ−1 µj σ

21. Slide 21: Theory (cont.)

    Theory (cont.) I Key point: conditional on λ and entry, q, pO , c, and pI higher for goods sold to richer markets.

22. Slide 22: Theory (cont.)

    Theory (cont.) I Key point: conditional on λ and entry, q, pO , c, and pI higher for goods sold to richer markets. I Entry cut-offs pinned down by: I Zero-profit conditions for marginal firms: rij∗ (λ∗ij ) πij∗ (λ∗ij ) = − wi fij = 0 σ I Free-entry condition (zero ex ante expected profit): ∞ ( ) E (

23. Slide 23: Theory (cont.)

    Theory (cont.) rij∗ (λ) ζj σkf w I Using facts that rij∗ (λ∗ij ) = λ λ∗ij and E (rij∗ (λ)) = k−ζ ij i j , the free-entry conditions can be rewritten: σk X fij ζj wj ζj 1 δfe k ∗ k = k , i ∈ h, n, s (2) R k − ζj wi (λjj ) λm j∈h,n,s ij I These can be solved explicitly for λ∗ , and λ∗ for i 6= j can b

24. Slide 24: Theory (cont.)

    Theory (cont.) I Model “real-exchange-rate shock” as a shock to productivity in outside sector, which determines wage rate. I Consider effect of changes in wn around equilibrium with wn = wh = ws = 1: ∂λ∗nh ∂λ∗ns >0 >0 ∂wn ∂wn ∂λ∗hn ∂λ∗sn <0 <0 ∂wn ∂wn ∂λ∗ss ∂λ∗hh >0 >0 ∂wn ∂wn ∂λ∗nn <0 ∂wn ∂λ∗hs ∂λ

25. Slide 25: Theory (cont.)

    Theory (cont.) I Output on each production line varies inversely with cut-offs. b rij∗ (λ) (σ − 1)fij λζj +a− 2 xij∗ (λ) = ∗ (λ) = 1 ∗ζ pOij wi τij (2µj − 1)− 2θ λij j

26. Slide 26: Theory (cont.)

    Theory (cont.) I Output on each production line varies inversely with cut-offs. b rij∗ (λ) λζj +a− 2 (σ − 1)fij xij∗ (λ) = ∗ (λ) = 1 ∗ζ pOij wi τij (2µj − 1)− 2θ λij j I The key observable is average input prices at the plant level: " # X ∗ (λ) xhj p ∗Ih (λ) = ∗ (λ) + x ∗ (λ) + x ∗ (λ) pI∗hj (λ) xhh

27. Slide 27: Theory (cont.)

    Theory (cont.) I Output on each production line varies inversely with cut-offs. b rij∗ (λ) λζj +a− 2 (σ − 1)fij xij∗ (λ) = ∗ (λ) = 1 ∗ζ pOij wi τij (2µj − 1)− 2θ λij j I The key observable is average input prices at the plant level: " # X ∗ (λ) xhj p ∗Ih (λ) = ∗ (λ) + x ∗ (λ) + x ∗ (λ) pI∗hj (λ) xhh

28. Slide 28: Theory (cont.)

    Theory (cont.) I Output on each production line varies inversely with cut-offs. b rij∗ (λ) λζj +a− 2 (σ − 1)fij xij∗ (λ) = ∗ (λ) = 1 ∗ζ pOij wi τij (2µj − 1)− 2θ λij j I The key observable is average input prices at the plant level: " # X ∗ (λ) xhj p ∗Ih (λ) = ∗ (λ) + x ∗ (λ) + x ∗ (λ) pI∗hj (λ) xhh

29. Slide 29: Data

    Data I Two main datasets: I Customs data on firm-level international trade transactions. I Essentially the universe of transactions.

30. Slide 30: Data

    Data I Two main datasets: I Customs data on firm-level international trade transactions. I Essentially the universe of transactions. I Inquérito Anual à Produção Industrial (IAPI) [Annual Survey of Industrial Production]: survey of prices of outputs and inputs of manufacturing firms. I In select

31. Slide 31: Data

    Data I Two main datasets: I Customs data on firm-level international trade transactions. I Essentially the universe of transactions. I Inquérito Anual à Produção Industrial (IAPI) [Annual Survey of Industrial Production]: survey of prices of outputs and inputs of manufacturing firms. I In select

32. Slide 32: Table 1: Summary statistics, firm-level data, 1997-2005

    Table 1: Summary statistics, firm-level data, 1997-2005 est. sample all exporters all manufact. Exports per firm per year 6.33 1.65 (42.35) (18.66) Export share of sales 0.47 (0.38) Number of export destinations, 2005 10.21 3.35 (10.75) (5.29) Number of export categories, 2005 15.2 9.85 (23.15) (27.

33. Slide 33: Table 2: Main export destinations, 1997

    Table 2: Main export destinations, 1997 Exports Full data Est. sample Est. sample (aggreg.) (aggreg.) (firm-level) (1) (2) (3) Richer nations 0.922 0.937 0.807 Germany 0.206 0.221 0.109 Spain 0.148 0.146 0.187 France 0.145 0.147 0.146 UK 0.124 0.122 0.086 Netherlands 0.051 0.053 0.04 Belgium 0.046 0

34. Slide 34: Table 2 (cont.): Main import source countries, 1997

    Table 2 (cont.): Main import source countries, 1997 Imports Full data Est. sample Est. sample (aggreg.) (aggreg.) (firm-level) (4) (5) (6) Richer nations 0.907 0.888 0.891 Spain 0.252 0.21 0.28 Germany 0.16 0.218 0.112 France 0.115 0.112 0.106 Italy 0.086 0.061 0.146 UK 0.073 0.071 0.058 Netherlands

35. Slide 35: Relative Price Levels, Top Richer Destinations

    relative price level (1997=100) relative price level (1997=100) 0 50 100 150 200 0 50 100 150 200 1997 1997 1999 1999 year year UK 2001 2001 Denmark 2003 2003 2005 2005 relative price level (1997=100) relative price level (1997=100) 0 50 100 150 200 0 50 100 150 200 1997 1997 1999 1999 year year 200

36. Slide 36: Relative Price Levels, Top Poorer Destinations

    relative price level (1997=100) relative price level (1997=100) 0 50 100 150 200 0 50 100 150 200 1997 1997 1999 1999 year year 2001 2001 Turkey Angola 2003 2003 2005 2005 relative price level (1997=100) relative price level (1997=100) 0 50 100 150 200 0 50 100 150 200 1997 1997 1999 1999 year year

37. Slide 37: Table 3: Gravity and export prices, 1997

    Table 3: Gravity and export prices, 1997 dep. var.: firm-product log export price (1) (2) (3) (4) richer than Portugal 0.09*** 0.08*** (0.03) (0.02) ln gdp per capita 0.03*** 0.03*** (0.01) (0.01) ln gdp 0.01 0.00 0.01 0.00 (0.00) (0.01) (0.00) (0.01) European Union 0.07*** 0.03 0.07*** 0.04* (0.02)

38. Slide 38: Empirical Approach

    Empirical Approach I Estimate firm-level average prices: ln pikt = θit + ψkt + uikt I firm i, product k, time t I Recover coefficients on firm-year effects, θbit . These represent firm-year-level average prices, deviating from product-year means.

39. Slide 39: Empirical Approach

    Empirical Approach I Estimate firm-level average prices: ln pikt = θit + ψkt + uikt I firm i, product k, time t I Recover coefficients on firm-year effects, θbit . These represent firm-year-level average prices, deviating from product-year means. I Regress average prices on exporting variables: θbit

40. Slide 40: Empirical Approach (cont.)

    Empirical Approach (cont.) I Instrument for destination income (and possibly export share and log sales): I For export destination j, define relative price level as: CPIjt ejt = log /(nominal exch. rate) CPIHt I This is the log of the reciprocal of the real exchange rate as usually defined. I Intera

41. Slide 41: First stage

    First stage avg. dest. export log income share sales (1) (2) (3) UK 0.05*** 0.03** 0.11** (0.01) (0.01) (0.04) USA 0.15*** 0.04*** 0.13* (0.02) (0.02) (0.07) Denmark 0.16*** 0.09*** 0.37* (0.04) (0.03) (0.21) Angola -0.20*** 0.03* -0.59*** (0.04) (0.02) (0.22) Brazil -0.16*** 0.04 0.27** (0.04) (0.0

42. Slide 42: Avg destination income and output prices

    Avg destination income and output prices dep. var.: firm average log real output price OLS IV (1) (2) (3) (4) (5) (6) log avg. destination gdp/cap 0.13*** 0.08 0.09 0.40** 0.35** 0.34* (0.05) (0.05) (0.05) (0.18) (0.17) (0.20) export share of sales 0.09** 0.06 -0.04 0.05 (0.04) (0.04) (0.07) (0.58)

43. Slide 43: Avg dest income and input prices, no euro-zone insts

    Avg dest income and input prices, no euro-zone insts dep. var.: firm average log real input price OLS IV (1) (2) (3) (4) (5) (6) log avg. destination gdp/cap 0.08*** 0.07** 0.07** 0.39*** 0.35*** 0.34*** (0.03) (0.03) (0.03) (0.10) (0.10) (0.10) export share of sales 0.02 -0.01 -0.11** 0.31 (0.03) (

44. Slide 44: Robustness: input prices, no euro-zone insts

    Robustness: input prices, no euro-zone insts dep. var.: firm average log real input price OLS IV (1) (2) (3) (4) (5) (6) log avg. destination gdp/cap 0.11*** 0.12*** 0.13*** 0.29** 0.30*** 0.30** (0.03) (0.04) (0.04) (0.11) (0.11) (0.12) export share of sales -0.02 -0.05 -0.11** -0.12 (0.04) (0.04)

45. Slide 45: Conclusion

    Conclusion I Robust evidence that exogenous increases in average income of destination markets has positive effect on input prices paid by Portuguese firms. I Work still to do to understand apparently anomalous results for 2nd income group. I Paper is more evidence, admittedly still circumstantial,

46. Slide 46: References I

    References I Bastos, Paulo and Joana Silva, “The Quality of a Firm’s Exports: Where You Export to Matters,” Journal of International Economics, 2010, 82 (2), 99–111. Bernard, Andrew B. and J. Bradford Jensen, “Exceptional Exporter Performance: Cause, Effect, or Both?,” Journal of International Econo

47. Slide 47: References II

    References II Lileeva, Alla and Daniel Trefler, “Improved Access to Foreign Markets Raises Plant-Level Productivity ... For Some Plants,” Quarterly Journal of Economics, August 2010, 125 (3), 1051–1099. Linder, Staffan Burenstam, An Essay on Trade and Transformation, New York NY: Wiley & Sons, 1961.

48. Slide 48: Avg dest income and output prices, including euro zone

    Avg dest income and output prices, including euro zone dep. var.: firm average log real output price OLS IV (1) (2) (3) (4) (5) (6) log avg. destination gdp/cap 0.13*** 0.08 0.09 0.31** 0.29* 0.34* (0.05) (0.05) (0.05) (0.15) (0.16) (0.19) export share of sales 0.09** 0.06 -0.02 -0.29 (0.04) (0.04)

49. Slide 49: Avg dest income and input prices, including euro zone

    Avg dest income and input prices, including euro zone dep. var.: firm average log real input price OLS IV (1) (2) (3) (4) (5) (6) log avg. destination gdp/cap 0.08*** 0.07** 0.07** 0.30*** 0.27*** 0.27*** (0.03) (0.03) (0.03) (0.09) (0.10) (0.10) export share of sales 0.02 -0.01 -0.08* 0.07 (0.03) (

50. Slide 50: Table 6: Exchange rates and export prices

    Table 6: Exchange rates and export prices Full data richest 2nd 3rd poorest (1) (2) (3) (4) (5) A. Dependent variable: firm-destination average log real export price B. Dependent variable: firm-destination log real export volume

51. Slide 51: Table 7: Destination income and firm average export prices

    Table 7: Destination income and firm average export prices dep. var.: firm average log real export price OLS OLS Red. form Red. form 2SLS 2SLS 2SLS 2SLS (1) (2) (3) (4) (5) (6) (7) (8)

52. Slide 52: Table 4: First stage

    Table 4: First stage A. Dependent variable: avg. GDP/capita of export destinations

53. Slide 53: Table 4: First stage (cont.)

    Table 4: First stage (cont.) B. Dependent variable: export share of sales

54. Slide 54: Table 5: Destination income and firm average input prices

    Table 5: Destination income and firm average input prices dep. var.: firm average log real input prices OLS OLS Red. form Red. form 2SLS 2SLS 2SLS 2SLS (1) (2) (3) (4) (5) (6) (7) (8)

55. Slide 55: Table 9: Source-country income, first stage

    Table 9: Source-country income, first stage dep. var.: avg. source income (1) (2) (3)

56. Slide 56: Table 10: Source-country income and input prices

    Table 10: Source-country income and input prices dep. var.: firm average log real input price OLS Red. form Red. form 2SLS 2SLS (1) (2) (3) (4) (5) coefficients on dest. exch. rate not reported; see table in paper.

57. Slide 57: Table 11: Destination income and input prices, one-step method

    Table 11: Destination income and input prices, one-step method dep. var.: firm-product log real input price OLS OLS Red. form Red. form 2SLS 2SLS 2SLS 2SLS (1) (2) (3) (4) (5) (6) (7) (8)

58. Slide 58: Figure A1: Share of Exports by Destination, Top Richer Export Destinations

    Figure A1: Share of Exports by Destination, Top Richer Export Destinations

59. Slide 59: Figure A2: Share of Exports by Destination, Top Poorer Export Destinations

    Figure A2: Share of Exports by Destination, Top Poorer Export Destinations

60. Slide 60: Table A1: Destination Income Groups

    Table A1: Destination Income Groups Richest income group 4th income group United Kingdom Spain United States Italy Sweden Finland Denmark Ireland Switzerland Israel Norway Singapore Japan Australia Hong Kong Poorest income group 2nd income group Angola Germany Brazil Austria Greece Turkey 3rd income

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