In the study—entitled Why Is the U.S. Share of World Merchandise Exports Shrinking?—Federal Reserve Bank of New York economist Benjamin R. Mandel examines the factors driving the sharp drop in the U.S. share of world goods trade. Mandel concludes that the reduction does not signal a broad-based decline in the relative competitiveness of U.S. exporters. Rather, much of the 3.5 percentage point fall in U.S. export share between 2000 and 2010 is attributed to a change in the composition of goods traded internationally and the relatively slow growth of the U.S. economy.
Mandel uses a two-pronged approach in examining the role that compositional changes in world exports played in the U.S. relative export performance. First, he identifies the products that contributed most to the decline of the U.S. export share, noting that it was a relatively small group. Next, Mandel calculates the extent to which U.S. manufacturers of each product lost market share to their foreign competitors and the extent to which the product itself simply claimed a smaller fraction of overall world exports. His results show that while the nation did lose ground to competitors in the export of some goods, the shifting make-up of the goods traded globally accounts for a significant part of the U.S. export share losses.
The second factor that explains the waning U.S. export share is the slower growth rate of the U.S. economy relative to that of its competitors. As a test, Mandel conducts a statistical exercise that relates a nation’s exports to its GDP share, geographic factors (such as the distance between import and export markets), and relative productivity. The results indicate that a reduction in the U.S. share of global output accounts for fully half of the decline in the U.S. export share. By contrast, flagging relative productivity—a proxy for competitiveness—"does not emerge as a large factor in the decline of the U.S. share of merchandise exports over the longer term."
To Mandel, GDP dynamics and the changing make-up of international exports are the biggest culprits for the drop in U.S. export share. The author also notes that outsourcing and declining commodity prices may have contributed. However, his report finds little evidence that U.S. firms as a group are experiencing a sharp drop in relative productivity, or in their ability to compete with foreign exporters more generally.
The study is the latest article in the New York Fed series Current Issues in Economics and Finance.
Why Is the U.S. Share of World Merchandise Exports Shrinking?
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