ΕΠΙθΕΩΡΗΣΗ ΟΙΚΟΝΟΜΙΚΩΝ ΕΠΙΣΤΗΜΩΝ
- Τε ύχος 9 (2006) , 145-166
PATTERNS OF INDUSTRRIAL EXPORT
SPECIALIZATION ΙΝ GREECE ΙΝ ΤΗΕ COURSE
OF EUROPEAN ECONOMIC INTEGRATION:
EMPIRICS AND DETERMINANTS
KLIMIS V061ATZ06LOU
Ph.D.
Abstract
Cιndldιtι
Unlνιrιlty
We analyze the degree and deνelopment of export specialization patterns of 35 Greek
manufacturing industries in the period 1981-2002. The empirical analysis examines the impact
of the European economic integration process on Greece's exports specialization within the
EU and seeks eνidence on the determinants of obserνed specialization patterns. We find that
labour-intensiνe and resource-intensiνe industries exhibit the highest leνe l of specialization.
During the whole integration period these two industry categories remain the most important
as regards intra-EU export specialization of Greece. Although in the course of European
economic integration there has been a decline in the specialization degree of l abo ur-intensiνe
industries, this deνelopment has not been followed by a significant upward trend in hightechnology sectors and increasing returns to scale industries. Thus, ίι seems that the oνerall
result is a decreasing export specialization of Greece within the European Union.
Furthermore, traditional factor endowments and comparatiνe adνantage considerations
continue ιο determine Greece's export specialization, while determinants of the new theories
of trade and economic geography seem to be less important in explaining the obserνed
specialization patterns in Greece.
Dιριrtmιnt
ot Ριtrιι
ot Βυιlπeιι
Admlnlιtrιtlon
Περίληψη
Αναλύουμε το βαθμό και την εξέλιξη της εξαγωγικής εξειδίκευσης
χανικών κλάδων στην περίοδο
1981-2002. Η
35 ελληνικών βιομη
εμπειρική ανάλυση εξετάζει τις επιπτώσεις της
ευρωπαϊκής οικονομικής ολοκλήρωσης στην εξαγωγική εξειδίκευση της Ελλάδας στην Ευ
ρωπαϊκή Ένωση και αναζητεί εμπειρικές ενδείξεις για τους καθοριστικούς παράγοντες της
παρατηρούμενης δομής εξειδίκευσης. Βρίσκουμε ότι οι μεταποιητικοί κλάδοι έντασης εργα
σίας και έντασης φυσικών πόρων παρουσιάζουν το υψηλότερο επίπεδο εξειδίκευσης . Καθ'
όλης της περιόδου οικονομικής ολοκλήρωσης αυτές οι δύο κατηγορίες παραμένουν οι πιο ση
μαντικές όσον αφορά την ενδοκοινοτική εξαγωγική εξειδίκευση της Ελλάδας. Αν και κατά
τη διάρκεια της οικονομικής ολοκλήρωσης υπήρξε μια μείωση στο βαθμό της εξειδίκευσης
στους κλάδους έντασης εργασίας , αυτή η εξέλιξη δεν συνοδεύτηκε από μια σημαντική ανοδι
κή τάση στους κλάδους υψηλής τεχνολογίας και στους κλάδους που χαρακτηρίζονται από οι
κονομίες κλίμακος. Έτσι, φαίνεται ότι το συνολικό αποτέλεσμα είναι μια φθίνουσα εξαγωγι
κή εξειδίκευση της Ελλάδας στην ΕΕ. Επιπλέον, οι παραδοσιακοί παράγοντες συγκριτικού
πλεονεκτήματος συνεχίζουν να καθορίζουν την εξαγωγική εξειδίκευση της Ελλάδας, ενώ οι
προσδιοριστικοί παράγοντες των νέων θεωριών διεθνούς εμπορίου και οικονομικής γεωγρα
φίας εμφανίζονται να είναι λιγότερο σημαντικοί όσον αφορά τα παρατηρούμενα πρότυπα
εξειδίκευσης στην Ελλάδα.
JEL Classification: Fl; F14; FlS
key words: European economic integration; Export specialization; Greece.
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1. Introduction
Since the Treaty of Rome ίπ 1957, regional economic integration ίπ Europe
has progressed with a rapid pace, which implies that a changing landscape and
economic geography has been established ίη the European economic space.
Along with theoretical thinking ίη international economic integration, which
analyzes the effects of integration οη welfare and trade and specialization
pattems, the literature has seen a great number of empirical studies that
investigate empirically the effects of integration οπ the economic geography of
regional integration areas. Since the sustained economic integration process ίπ
Europe constitutes a form of natural research laboratory for trade economists,
the great bulk of empirica1 analyses is devoted to this region (Amiti, 1999;
Brulhart, 2001; Fontagne et al. , 1997; Haaland et al. , 1999; Midelfart-Κnarvik et
al. , 2000; Sapir, 1992 and 1996; Storper et al. , 2002)(\ J_However, these studies
take to a large extent either a general view of the European Uπίοπ or focus οη
the "core" EU-countries - Belgium, Germany, France, Italy, and the UK - and
thus the literature leaves a gap for some "peripheral" countries. This paper aims
to fill this gap for the case of Greece.
The Greek economy has been for over twenty years ίπ the European
economic integration process and thus has s u staίned - and still undergoes major adjustments and changes as regards the industrίal structure and trade
specίalization . Ιη this paper we investigate analytically quantitative (descriptive
empirics) and qualitatίve ( characteristics and determinants) aspects of
Greece's export specialization within the European Uπίοπ . Ιπ partίcular, we
analyze the degree and development of export specialization pattems of 35
Greek manufacturing industries ίη the period 1981-2002 by calculating Balassa
indices for each industry and year observation included ίη our sample. The
remainder of the paper is organized as follows: Ιη section 2, the theoretical
background of international trade and specialization is presented. Ιπ sectίon 3
we conduct the empirical analysis and present the magnitude and development
of export specίa lίzation of Greece within the European Uπίοπ. Ιπ section 4 we
take a closer look at the observed specialization patterns, by analyzing various
relevant industry-specific characteristics and seek evidence οη the determinants
of Greecι(' s export specialίzat ion . Finally, Section 5 summarizes the most
important findi ngs and concludes.
2. Theoretical Background of International
Trade and Specialization
Trade theorίes can give us the necessary understanding of specialization
patterns and information οη the effects of economic integration. Traditional
comparative advantage models have long been criticized as an insufficient
( 1) For empirical studies on specialization pattems for the US economy see for instance, Dumais eι
al. (1997), Hanson (1998), Κίm (1995), Κrugman (199lb).
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theoretical framework, which does not capture a considerable part of forces
that are crucial ίη shaping and explaining trade patterns (Grubel, 1967 and
1970; Hufbauer and Chilas, 1974). Because of the empirical observation that
since the post-war period intra-industry trade (ΙΙΤ) shares are consistently
growing and that a Iarge proportion of world trade is between very similar
countries, it had been suggested that other models need to be developed
(comparative advantage models are incompatible with ΙΙΤ) .
As a response to that fact, in the 1980's and 1990's we saw developments ίη
trade and location theory, which have been labelled as the "new" theories of
trade and economic geography. The models of Κrugman (1979; 1980; 1981) and
Helpman and Κrugman (1985) , known as the "new trade theory", showed
formally for the first time that economies of scale can be a basis and source of
international trade and aggregate welfare gains. Theoretical advances ίη
economic geography rnodels occurred ίη the 1990's (Κrugman , 1991a; 1991b;
1993; Κrugman and Venables, 1995a; 1995b; Venables, 1996). These rnodels,
known as the "new economic geography" focus οη externaHties, technological
spillovers, and input-output Iinkages among industries as the determinants of
agglomeration and industrial concentration. Thus, at the present development
the theory of international trade and specialization can be distinguished into
three different strands or classes of models.
2.1.
Tradίtional trade
theory: Comparative advantage models
Traditional trade theories (2) represented the dominant paradigm ίη
intemational trade until the recent years, where alternative "non-conventional"
models were developed and acquired importance and became the focus of
trade economists. However, cornparative advantage rnodels still remain useful
tools ίη international economics and explain a substantial share of world trade.
Essentially, within the traditional neo-classical frarnework we can distinguish
two distinct theories, which focus οη particular aspects of comparative
advantage. The first of these theories is the Ricardian model, which is
associated with David Ricardo, whereas the second one is known as the
Heckscher-Ohlin (factor-proportions) model. The Ric~rdian theory focuses οη
differences ίη technolqgies across countries as a cause of international trade.
Comparative advantage is determined by differences ίη technology (production
function). Here, only one factor of production (labour) is assumed and two
goods are produced. Thus, differences ίη technology represent differences ίη
Iabour productivity. Ιη addition, it is assumed that firms are perfectly
competitive, which exhibit constant returns to scale ίη production. Each
country specializes ίη the good ίη which it has a comparative advantage. Ιη the
Ricardian model, countries specialize completely ίη the production of one
good, which means that they produce and export only one commodity
(comparative advantage) and import the other one (comparative disadvantage)
(2) Ricardo (1817); Heckscher (191 9); Ohlin (1933).
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from their trading partner. As lo ng as a pattern of comparative advantage
exists, production efficiency gains from specialization can be achieved and free
trade will be profitable for both countries <3>.
The Heckscher-Ohlin model differs from the Ricardian model ίη that it
assumes a second production factor and identical technology across countries.
Ιη this model , comparative advantage and trade are determined by differences
ίη relative factor endowments. Ιη particular, the model assumes the following:
1) two factors of production (Labour and Capital), 2) perfectly competitive
firms with constant-returns to scale produce two goods (one capital-intensive
and one labour-intensive good), 3) preferences are identical and homogeneous,
4) there are differences ίη relative factor endowments across countries. The
model's prediction can be summarised by what is known as the HeckscherOhlin Theorem, which states that each country will export the good using
intensively its abundant factor.
UnJike the Ricardian theory, ίη this model countries do not specialize
completely when free trade takes place, but continue to produce both
commodities. Furthermore, the Heckscher-Ohlin model explicitly takes into
account the effects of trade οη the distribution of income between the two
factors. Specifically, free trade increases the relative price and real income of
each country's abundant factor, whereas the opposite is true for each country's
scarce factor. Ιη summary, the traditional trade theory is characterised by
constant returns to scale, perfect competition, non-differentiated goods and
identical-homogeneous preferences. Trade and location is determined
exogenously by country characteristics. Countries specialize according to their
comparative advantage, which is determined by differences ίη technologies or
differences ίη relative factor endowments across countries. FinalJy, trade
liberalization leads to inter-industry specialization, whereas high trade costs
(tariffs, non-tariff baπiers, transport costs, etc.) lead to a dispersion of industries.
2.2. New trade theory
The "new trade theory" provides alternative causes of trade and elements,
such as increasing returns to scale, differentiated goods, imperfect competition,
and domestic market size, which are able tq explain the trade that takes place
between similar industrial countries that do not differ much ίη their production
technologies or relative factor endowments. The main motivation (cause) for
such a trade to take place, if increasing returns are present, is that firms, which
operate under monopolistic competition and produce differentiated goods, will
choose to produce only ίη one location (country) ίη order to take advantage of
scale economies. There will be gains from trade, because, οη the one hand, the
two economies combined will produce a wider range of differentiated goods
(greater diversity), which leaves consumers with a wider range of choice, and οη
the other hand, for each firm there will be an increase ίη the scale of production
(Κrugman, 1979).
(3) Although, one country might not capture these gains.
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In Κru g m a n (1980), a slightly di ffe rent model is developed in order to make
the analysis of the effects of transportation costs and home market on trade
easier. In particular, it is assumed that monopolistically competitive firms
di ffe rentiate their products without any cost and can free ly enter or exjt the
industry (monopo ly profits in equilibrium are zero). At zero trade costs, each
di ffe rentiated product will be produced in only one country and factor prices
(wages) will be the same in all countries (only one factor is assumed, labour). In
addition, the prices of diffe rentiated goods produced in di ffe rent countries will
be equal. G ains fro m trade eχj s t in the fo rm of greater variety of products.
As a second step, transpo rtation costs are included in the model, where
these costs refer to the "iceberg" type. With this formulation, the prices of the
diffe rentiated goods the wages in diffe rent countries will, in general, not be equal.
Regarding the relative wage rate, the larger country, ceteris paribus, will have the
higher wage. The presence of increasing retums and transportation costs leads to
the result that production will tend to concentrate close to the larger market
(greater demand) fo r that good. Increasing retums activities will tend to
concentrate in one location in order to capture economies of scale, and locate
near the largest market in order to minimize transportation costs. This leads
countries to specialize in and export those goods fo r which they have a large
domestic market. This result, known as the "home market" effect, is derived and
shown in Κrugm a n 's (1980) extended model with a two-industry economy setting,
where each industry produces one class of many diffe rentiated goods, and two
groups of consumers derive utility fro m only one class of diffe rentiated products,
who determine the demand for these two types of products.
In addition, the model assumes the eχjs te n ce of two identical countries, which
diffe r only in their proportion of these two types of consumers. This ensures that
the demand (market) fo r a class of product is different in the two countries.
Specifically, it is assumed that the foreign country is a mirror image of the home
country. If free trade takes place, when the home country has, fo r instance, a
larger percentage of consumers that derive utility from the "alpha" class, then the
home country has the larger domestic market for that class of good, and therefore
wiU specialize in the industry of "alpha" products. In other words, each country
will specialize in the class of goods that it has the larger domestic demand, and
thus, become a, net exporter of that good. This Ώo rm ally leads to inter-industry
specialization, but ίntra -indus try trade and incomplete specialization can arise if
transportation costs are high or if scale economies are less important.
In summ ary, the new trade th eory inco rporates industry-specific
characteristics, such as economies of scale, imperfect competition, transportation
costs and differentiated goods, and draws attention to domestic market size,
which is determined by the size of labour fo rce. The theory predicts the "home
market" effect, where countries export those products in which they have a large
domestic market. Production (industry) is concentrated in one location with large
domestic demand in order to realize scale economies and minimize transport
costs. This implies that trade liberalization wίll result in the concentration of
increasing-returns industries in large countries.
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2.3. New economic geography models
Essentially, within the "new economic geography" \jteratυre we can
distinguish two c\asses of models. One c\ass of models shows how countries can
endogenously develop into an industria\ized "core" and an agricultural
"periphery" (e.g. Κrugman , 1991a). IndustriaJ location becomes entirely
endogenous, because inter-regional demand differences (distribution of demand
between the two regions, where thjs distribution depends on the distribution of
firms between the two regions) are endogenous through the assumed labour
mobility. Firms will tend to locate ίη regions with the larger market in order to
capture scaJe economies and minimize transport costs, but market size (of the
two regions) depends on the distribution of manufacturing fjrms, wruch are
themselves mobiJe and endogenous. Thus, there is a backward linkage, which
creates a circular process. Industrial production will tend to be concentrated
where there is a large demand, but the demand will be large where production is
concentrated. In addition, there may exist a forward linkage. Labour wilJ have an
incentive to concentrate at the "core", because the manufacturing goods are
cheaper (without transportation costs ). Obviously, the geographical pattern
(core-periphery) that will emerge depends on initial conditions.
Α region with a large urban population (market) will attract firms because of
the reasons that were mentioned previously. This fact, in turn, will cause the
urban population of other regions to migrate toward the large region, which will
become in that way an even larger urban area. This process continues until the
non-ruraJ population of aJI other regions is concentrated in a few large urban
areas. Scale economies, transportation costs and the fraction of income spent on
manufacturing products play a crucial role. The implication of the above
economic geography model regarding international trade is that economic
integration can lead two identicaJ countries to become differentiated into an
industriaJ core and an agricultural periphery and inter-industry trade will prevail.
In the second class of the new economic geography models inter-regional
demand differences become endogenous, because firms, which demand
intermediate-goods, are themselves mobile (labour is assumed to be immobile)
and thus, location patterns are formed endogenously (e.g. Venables, 1996).
Here, industries are linked vertically through an input-output structure. In
particular, '"downstream" industries, which produce final goods, demand and
use intermediate goods from "upstream" industries, which produce the inputs
for downstream firms.
Thus, downstream industries represent the "market" for upstream firms,
which will tend to concentrate near to locations with many downstream firms
(the "home market" effect). This creates a backward linkage between these two
types of industries. On the other hand, downstream industries will have an
incentive to be located in an area with many upstream firms in order to obtain
cheaper inputs (without transportation costs, cheaper intermediate goods
because of higher competition between upstream firms). This represe nts the
forward or cost linkage. These linkages, in turn , can be a cause of concentration
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of vertically linked industries. The stronger these linkages are, the higher the
degree of clustering of industries will be, and the larger the sha.re of
intermediate goods ίη the production of final goods is, the stronger the inputoutput linkage will be. Hence, according to this model, intermediate goodsintensive industries are expected to be, ceteris paribus, more geographically
concentrated. Regarding intemational trade, this means that vertically linked
industries will be located ίη one only country rather than in different. The
crucial point of the new economic geography models as regards the resulting
specialization pattern is the level of transaction costs (transport costs, trade
costs, etc.). Ιη particular, there is a U-shaped relationship between integration
and geographical specialization. At high and very low transaction costs
industries are dispersed across countries and thus intra-industry trade prevails.
Οη the other hand, if trade costs are at an intermediate level, which is the
critical value, agglomeration forces are relatively stronger and the geographical
concentration of industries is ίη its highest level. Ιη this case, inter-industry
trade will emerge between different countries.
3. Trade Patterns and Industrial Export
Specialization ίο Greece
3.1. Intra- and extra-EU export patterns
Although the process of economic integration between Greece and the
European Union <4 ) began ίη the 1960s(5), the Greek economy experienced
mainly after 1981 an opening up and thus entered into the increased European
and world competition. This was a result of Greece's entry into the EU ίη 1981,
which led to the reduction of the external protection of the Greek
manufacturing industry f.rom European as well as from world markets, since the
level of tariff protection of Greece before her accession was higher than the
corresponding level of the EU (common external tariff) that applies to thirdparty countries. This opening up to international markets, implies that the
degree of international economic integration of Greece must have risen .
Indeed, there has been a consideral;>ly trade expansion. Since ίη this study
we are mιainly interested ίη Greek exports we will take first a concise look at the
exports side as regards the patterns of Greek exports and ίη the next subsection
we examine analytically the export specialization of Greece. As ίt can be seen
from Figure 1, exports as a percentage of Gross Domestic Product (GDP) show
ίη general a significant upward trend between 1960 and 1980. More specifically,
during this time period both intra-EU and extra-EU exports increase and reach
in 1980 a level of 5,3% of GDP.
(4)
Αι
that time ca ll ed European Econom ic Comm unity (EEC).
(5) ln 1961 an associat ion agreement between the EEC and Greece was signed.
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g
lntro-EU Exports
6
7
6
5
Εχιτο-ΕU Exports
3
2 +---+---<~-+--+-~t---+---+~+---+---<~-+--+-~+---+---+~+---+---<f---+--+-~+---+---+---<
~~~~#~~~~~~~~~~~~,~#~~~#~
Fiμre
1. lntra-EU and extra-EU exports ofGreece as a percentage ofGDP
Commimon (20Q4).
Sl1flrCC Ειιrοpeαιι
However, after 1980 the relative importance of intra-EU vis-a-vis extra-EU
exports diverges. During the 1980s Greek intra-EU exports achieved a
considerable growth, while extra-EU exports experienced a sign ificant decline.
In 1987 intra-EU exports represented 8,1% of GDP, whereas the respective
level of extra-EU exports was 3,4%. Thus, it seems that the export expansion
that took place during that decade has been at the expense of extra-EU exports.
While this may sound plausible due to the economic integration with the EU,
this development is certainly not the norm. On the other hand, during the 1990s
the opposite trend is observed, where the relative importance of intra-EU and
extra-EU exports converges. Furthermore, in recent years extra-EU exports as
a percentage of GDP exceed the respective level of intra-EU exports and
Greek exports in general are becoming relatively less important in the Greek
economy as evidenced by the low level of the exports to GDP ratios.
lt is also instructive to look at the direction of extra-EU exports. Table 1
presents the share of Greek exports in total exports by geographical region.
Again, an upward trend of intra-EU exports during the 1980s and in the
beginning of the 1990s is evident, while after 1992 the share of intra-EU exports
in total exports shows a significant decline. Extra-EU exports are mainly
directed toward Asia and other Eu rope. However, during the 1990s Greek
exports toward other Europe almost tripled (33,4% in 2000), whereas they
dec\ined substantially in Asia and Africa-Oceania and remained at about the
same level in America.
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Table 1. Grcek exports by geographical region (as a % oftotal exports)
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
20001
49,8
49,4
57,0
65,9
67,8
67,2
68,8
56,6
54,6
53,7
45,2
OtherEωope
15,3
13,3
11,1
10,5
11,2
13,5
14,2
21,4
26,8
27,9
33,4
Ameήca
6,5
9,5
9,1
8,3
7,7
7,2
5,5
8,0
6,0
6,9
8,3
Asia
17,3
17,3
13,8
9,0
8,2
6 ,5
6,6
9,3
8,9
6,7
8,7
Africa & Oceania
11,1
10,5
9,0
6,3
5,1
5,6
4,9
4,7
3,7
4,8
4,4
Emopean Uιιίοο
2
'Provisiooal dιιta, ΈU-15 .
S.ιuα:
Prrx:uHd datιιfrom tJιe Natiorιol StαtUtioal Servi~ ofGrwce {νariOtl.! iUMU).
The fact of the huge export growth toward non-EU European countries in
recent years may reflect the declining competitiveness of Greek exports within
the European Union and thus are directed toward those European countries
tha t are less developed and less technologically advanced (mainly toward
Bulgaria and Romania) .
3.2. Industrial Export Specialization Patterns
In this part we conduct the empirical analysis of export specialization in
Greece. As regards the industrial export specialization patterns, the paper's
resu lts are based on the calcu lated Balassa indices of specialization for each
industry and year obseιvat i on included in our sample. This special ization index,
which can be used for the determination of export specialization when export
data are employed, is defined by the following equation:
χίj
n
Σχίj
BALASSA;j =
i=I
(1)
ΠΙ
Σ χίj
j=I
n
ΠΙ
Σ Σ xij
i= I
where
Χ
j= I
denotes exports and subscripts i, j, n , and m denote industries,
countries, total number of industries, and tota l number of countries in the
country group (e.g. the EU), respectively. Hence, Χίj is exports of industry ί in
country j , Σ Xij (summation across ί= 1, ... , n) is total exports in country j , Σ
X;j (summation acrossj= 1, ..., ni) is exports of industry ί in the EU (all EU
countries together) and Σ Σ Xij is total exports in the EU. Since in this
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empirica] study we are concemed with manufacturing industries,
exports of manufacturing industry ί.
Χίj
refers to
The Balassa index, which is sometimes referred to as the "Revealed
Comparative Advantage" index, is a measure of relative specialization, since it
anaJyzes a country's export share of an industry (product) relative to the
corresponding export share of the country group (the EU as a whole). This
index takes values between zero and infinity and relates positively to a country's
specialization in a particular industry. The analysis draws on the United
Nations' COMTRADE Database, which provides export data for 35 SITC 2digit manufacturing industries in Greece and the other EU countries for the
time period 1981-2002.
The first step of the analysis is to reveal the export specialization pattern of
individual manufacturing industries in Greece over the period 1981-2002. In
Table 2 we report the empirical results for the years 1981, 1986, 1991, 1996, and
2002. At the beginning of the period, which is the year of Greece's entry into
the EU, very high export specialization is found for the Clothing industry
(Balassa index = 5,426), Leather industry (4,996), Textile industry (4,199),
Footwear industry (3,398), and for Non-metallic mineral manufactures (3,262).
For the year 1981, 10 manufacturing industries exhibit a value of the Balassa
index above unity, which means that Greece was relatively specialized and had
a "revealed comparative advantage" in those industries within the European
Union at that time. However, most of the industries have a specialization index
below unity, where especially the various machinery-producing industries
(SITC section 7) exhibit a value close to zero.
Specifically in 1981, Greece was least specialized in terms of exports in
Office & automatic data-processing machines (Balassa index = 0,015),
Metalworking machinery (0,022), Other transport equipment (0,046), Power
generating machinery & equipment (0,053) , and Photographic apparatus &
equipment (0,054). On the other hand, these rankings are changed in 2002,
which points to the changing patterns of export specialization in Greece during
her process of economic integration with Europe. In particular at the end of
our sample period, the highest export specialization index is found again in the
Clothing industry (8,347) followed by Non-ferrous metals (6,326), Fertilizers
(3,944), Textile industry (2,761), and Plastics in non-primary forms (2,078).
154
KLIMIS VOGIATZOGLOU - REVIEW OF ECONOMIC SCIENCES - Νο 9 (2006), 145-166
Table 2. Export specializatioo σf Greek manufacturing industries, 1981-2002 (Balassa indices)
srrc
INDUSTRY DESCRIP'ΠON
Code
Sl υrαιιίc cbc:micals
. cbc:micals
S2
S3 .υyc:ίιιg tJmnίιur .ι: oolauriιw matαials
. . •
orocιucιs
S-4
ss :ε-αιι οίl&. reιiιιoids .ι: nr:rfume ιιιιιt.
S6 Fcrtilizς:q (odιer d8ι dιοιe σf ΙΙΠΙUΙΙ 272)
S7 Plasιic:s in σήιιιιrv foιms
S8 Plasιic:s in 111111-ριimιry formι
S9 CΙισιιιίca1 ID8lσials aιιd nmι1ιιctιι D.C.S.
D.C.S.
61 LcatlΩ. lcιdιer
n.e.s.
62 ~
63 Coιt aιιd wood nw••&dures
Μ
68
69
71
72
73
74
7S
76
77
78
79
81
82
83
84
ss
87
88
89
1986 1991
0,136 0.11•
OS7S ο s11
Ο l-4S ο 198
0708 0639
0-426 0281
0928 2227
2 3-46 3,860
07S8 ο 307
103-4 0 ....9
-4,996 S9S8
0.263 OS29
0.7S7 0.892
0,677 0,317
aιιd aιticles σf DllDσ'
ΙΡ8Ρα'.
Textile vam fabrics &: related nmdιιc:ts
4.199 3.781
"
'ιu. miDeral maιιιιfactures
3,262 2,279
l 3S7 l.77S
Ιrοιι aιιd Sfcd
ΙNon-feπous mctaJs
2778 2,S84
Μaιιιιf'ιι tures σf~ n.c.s
1 lS-4 066S
aιιd eαuiD.
OOS3 007S
Power
. .. . for naιticώar ind.
O,OSS 0060
0022 0,029
.
.
Gc:ιιc:ιal ίιιdιιιιήaΙ
aιιdMUiD.
ο 168 0,099
Ο OlS ooos
Offioc .ι: autom8tic dala
maclιin.
Telerom..,....;,.,,lioιιs
0.248 ο 191
0,693 0,391
.ι: aDDI.
0, 167 OOS6
Roιd νdιicles
0,0-46 0,137
OdιcrΡn:διbήαιιcd buίldinιιs
0297 0,1S8
ο 123 0,071
Funιίtιιre .ι:
tlιemJ( fixtures
Τιaνd ιιοιιιΙ&.
.ι: ιimilar nmd
07S6 ο 31-4
Aιticla; σf- .ι: ClOUlinιι accc:ιιιoήcs
S,426 10,03
Footwcar
3 398 18SO
0, 117 0,099
Pmfaιkoιl &: sciaιtific ίιιιsιnιmcιD
• 81111• .ι:
0,0S-4 0018
Miιodlaιιoous maιιιιliιι:tιll'Cd articlcs
OSS4 0,429
β 1 ά:οσΙt:s aonual 8\'a'l8C growth rale ( estimalal with a 1ίncιιr
aιιd
6S
66
67
1981
~
- ..
•. - - -
-
0.178
0266
0.9S6
0.718
0809
2,228
0.290
0809
ο 393
-4.26S
Ο Sl4
1 101
0333
2843
2,378
l.91S
3,742
07S9
0,431
ο 136
ο 116
Ο IS9
006S
0269
ο 374
0,032
0,220
0,234
o, 1os
0.277
11,09
0.680
0,20S
0,073
0,487
1996 2002
Ο.173
0.3-4S
0.9SO
0.-477
l,20S
s 110
0,3S3
1.219
0696
2080
0677
l 1S7
0492
2307
2,448
1.383
-4,S77
1.024
0,787
0300
ο 163
0276
0,102
0392
0610
0,077
0,470
0,7S8
0,-416
0.201
9,93S
0,774
0,-46S
0.218
0,888
βι
0,16-4 00046•
0276 -0 01ss••
0,944 Ο,Ο-462••
0.70-4
-0,0016
1,819 007~·
3.944 ο 1867••
l,16S -00903••
2.078 0,0123••
-0027-4
Ο.679
1,378 -0 21os••
0498
0007S
0682
-0.0070
OS66
0001s
2 761 -0,0979••
1,466 ..()06()6••
-0,017S
1.498
6,326 0, 182~·
1.208 0.0116•
0,73S ο.ο~·
0.418 0.0202••
0,16S 0.0096••
OS16 Ο 01S3••
0,23-4 0,0111••
0809 ο 031s••
0,7S2 0023~
0,062
-0,0007
ο 0332••
ο 719
l,OS9 00424••
0,32S 0,0168••
ο 370
-0,00SS
8,347
0,08S7
os7s ..()0966••
0,S03 0,0196••
0.48S 0,0297••
0,92S 0,033~·
Ν.ιc
time τφαsίοιι fιr eaclι induslιy ί:
BALASSArllo+βιt+u;., t=I981 ,1982,1983, .. . ,2002).
•stati.!ticalJy significam at the 5% leνel ( α:(),05), ••!llιιtisticalJy significant aι tbe ι % level ( <Α>,01 ).
Industries with ι th e lowest specialization index are: Road vehicles (0,062),
Organic chemicals (0,164), Metalworking machinery (0,165), Office &
automatic data-processing machines (0,234) , and Inorga nic chemicals (0,276).
For the year 2002, the Balassa index of 12 manufacturing industries is above
unity. Furthermore between the years 1981 and 2002, 22 industries experienced
an increase in the export specialization index, whereas 13 experienced a
decline. However, to consider on ly two isolated data points could be
misleading. Therefore, we estimated the annual average growth rate of each
industry over the whole sample period with a linear time regression. The time
trend of each industry is shown in Table2. Out of 35 industries, 23 show an
upward trend in export specialization, though fo r 3 industries the increasing
linea r time trend is not statistically significa nt at the 5% and 1% level. The
155
ΚΛΗΜΗΣ ΒΟΓΙΑΤΖΟΓΛΟΥ
•
ΕΠΙΒΕΩΡΗΣΗ ΟΙΚΟΝΟΜΙΚΩΝ ΕΠΙΣΤΗΜΩΝ · Τεύχος
9 (2006) , 145-166
highest annual average growth rate is found in the FertiLizers industry (18,67% ),
Non-ferro us metals (18,2%) - see also Figures 2a and 2b, respectively - Clothing
industry (8,57%, but not statistically diffe rent fro m zero; see also F igure 2f),
Essential oils & perfume materials (7,6%), and Plastics in non-primary fo rms
(7,23% ). On the other hand, the most pronounced decline in the degree of export
specialization is found in the Leather manufacturing industry with an annual
average decrease in the Balassa index of 21,08%, followed by the Textile industry
(-9,79%) and the Footwear industry (-9,66%) - see also Figures 2c, 2d, and 2e,
respectively.
The development path of o ne particular industry as regards its degree of
expo rt specializatio n bears a special interest and thus examination. The Clothing
industry (SITC code 84) displays by far the highest Balassa indices over the whole
sample period (Figu re 2f). For various years the calculated specializatio n indices
take a value above 10. This reveals the great importance of this industry regarding
the expo rts of the Greek economy. It seems that in this particular activity Greece
is highly specialized and enjoys a "comparative a dν!lntage" within the E uropean
Unio n. However, the magnitude of this advantage changes over time in an
interesting way. Although before Greece's accession to the EU the Clothing
industry exhibited a high Balassa index, just afte r the country's accessio n expo rt
specialization rose radically and reached in 1988 a top value of 11,905.
5,6
6.75
4,8
~ 6,00
~4.0
:! 5,25
Ζ
i3,2
14,50
~2,4
~
~1 .6
3,00
0,8
ο .ο
3.75
....
....
i i ~ s 1 i §! ~ !11 1 ~
Figure 2a. Gro\\.1h ofExpoή Specialization
in the Fertilizers lndustrχ in Greece
2,25
j
i
81 !i §! 1 11
~
2
Figure 2b. Gro,,1h of Εχpοή Specialization
in Non-ferrous Metal Products in Greece
6,4
5,6
~ 4,0
~4.8
:! 3,6
Ζ
i4.0
13.2
~3.2
ϊι 2,4
1,6
0,8
~ 2.8
ϊι
2.4
+-<-...__._.....,......................__........,.....................................,>--ι-4
! i 1! 1! ~ 1!
~ ~
2,0 -l-+-+-1-+-+-+-+-+-+-1-+-+-+-+-+-+-+-+-~
i
i ' ! 1! ~ 1! 1~
Figure 2c. Decreasing Εχpοή Specialization Figure 2d. Decreasing Εχpοή Specialization
in Leather Manufactures in Greece
in the Teλ1.ile Industry in Greece
156
KLIMIS VOGIATZOGLOU - REVIEW OF ECONOMIC SCIENCES - Νο 9 (2006) , 145-166
3,5
3,0
!!! 2.5
Ζ
i~~
i
1,0
0,5
ο.ο +-+-+-f-+-+-+-+-f-+-+-+--+-<f-+-+-+-+-f-+-~
!i
·ι
!ι!
~ ι
! 1~
Fiμre 2e. Decreasing Export Specialization Fiμre 2f. Export Specialization development
in the Foot\vear Indu~, in Greece
in the Clothing Industry in Greece
After a period of relatjvely stable and high values of specialization (late 1980s
and at the beginning of the 1990s), the Balassa index of the Clothing industry
deteriorates significantly during the 1990s and at the beginning of the third
millennium. Thus, the evolution of export specialization shows an initial rugh
upward trend and afterwards a significant negative trend. Therefore, the time
regression for this industry yields a non-statistica11y significant coefficient of the
linear time trend. Trus development witnesses the decreasing trend in the
comparative advantage of Greece's most specialίzed industry in terms of exports
in relation to the other EU countries, which seems to continue in the future.
4. Determinants of Specialization Patterns
In this section we conduct a more analytical examination by analyzing
various industry characteristics and examining their impacts on the - resulting
from the previous analysis - export specialization of Greek manufacturing
industries within the E uropean Union.
Econorruc theory has to a large extent analyzed the relatίonship between
international trade, economjc growth, and technological progress <6J. Furthermore,
in recent years a great number of empirical studies have focused on the export
performance and competitiveness of countries .in connection with the
development of domestic high-technology industries. These studies point out
that high-technology oriented sectors exhibit a better performance, a higher
export dynamism in international markets, a higher level of productivity, and
promote the improvement of the competitiveness of other domestic sectors
through the diffusion of knowledge and technology (OECD, 1997).
Thus given the great importance of technology as regards international
trade and growth of an open economy, we consider below the technology
dimension of Greece's export specialίzation. In order to reveal and analyze the
specialization pattern by technology level, we categorize our industry sample
according to four technology levels, using the OECD's (2001) technology
(6) For a good presentation ο η this
subj ecι
matter see for insta nce, Archibugi and Michie (1998).
157
ΚΛΗΜΗΣ ΒΟΓΙΑΤΖΟΓΛΟΥ
- ΕΠΙθΕΩΡΗΣΗ
ΟΙΚΟΝΟΜΙΚΩΝ ΕΠΙΣΤΗΜΩΝ
- Τεύχος 9 (2006) , 145-166
classification of industries, and calculate group-wise Balassa indices over the
whole sample period. Specifically, the analysis distinguishes the following
technology-level categories:
1. High Technology Industries (4 industries
ίη
our sample)
2. Medium-high Technology Industries (11 industries
3. Medium-low Technology lndustries (10 industries
4. Low Technology Industries (10 industries
ίη
ίη
ίη
our sample)
our sample)
our sample)
Ιη Figure 3 the evolution of Greece's export specialization by technology level
is presented. As it becomes evident from Figure 3, the highest specialization is
found ίη low technology industries and medium-low technology industries. These
two technology categories exhibit very high Balassa indices over the whole period
under investigation. Οη the other hand, Greece is least specialized ίη high
technology and medium-high technology industries. Although this result may not
seem surprising, the analysis highlights the magnitude of this fact, that is the
particular low specialization indices (between 0,2 and 0,6), which shows that
Greece has clearly a comparative disadvantage ίη these technology categories ίη
the European Union. The development path is also worthy of consideration.
Although low technology industries exhibit the highest Balassa indices, the
degree of specialization shows clearly a decline ίη recent years. More specifically,
while ίη 1981 the Balassa index was 2,478 it increased continuously up to the year
1987, reaching a level of 3,143, and thereafter it declined, reaching a value of
2,219 ίη 2002. As regards the medium-low technology industries, they show an
upward trend ίη export specialization with an annual average growth rate of
1,81 %. Furthermore, both high technology and medium-high technology
industries have ίη recent years experienced an increase ίη their export
specialization levels with an annual average growth rate of 1,82% and 1,14%,
respectively. However, although there is a relatively convergence of high
technology industries vis-a-vis low technology industries, ίt is a weak convergence
and not sufficient to reverse the specialization pattems ίη favour of the high
technology activities ίη Greece.
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KLIMIS VOGIATZOGLOU • REVIEW OF ECONOMIC SCIENCES • Νο 9 (2006) , 145-166
3,6
3,0
2,4
1,2
Higlι T«lι1tology l1tdιutήn
0 ,6
""
Μ~Τ«ΙΙ~
ο.ο +--+---t-+--+---t-+--f--+-+--f--+-t--+--+-t--+--+---it--+--+--t
Another important industry characteristic, as regards the pattem of
specialization and the effects of increased economic integration within a RegionaJ
Integration Area, that has to be considered are scale economies, as emphasized by
the new trade theory. ln fact, economies of scale are considered to be important
determinants of overall welfare and economic growth and it is believed that the
European economic integration process brings with ίt and creates gains for
member states ίη the form of ίncreased scale economies. Thus, the next step of our
analysis is to examine the specialization patterns of Greek manufacturing
industries according to the importance of increasing retums to scale.
The analysis draws on an industry classification of scale economies by Pratten
(1988), where intemal increasing returns to scale are measured by engίneering
firm-level cost functions on the basis of estimates given by engineers, managers
and economists. We apply the Pratten (1988) classίfication of scale economies for
our industry sample and calculate Balassa indices for the followίng ίndustry
categoήes over the whole research period:
1. High Scale Economies (11 industries in our sample)
2. Intermediate Scale Economies (12 industries in our sample)
3. Low Scale Economies (12 industries in our sample)
The results, which are reported in Figure 4, indicate clearly that the export
specialization of Greece relies heavily on activities with low scale economies,
whereas industries with high economies of scale exhibit low Jevels of
159
ΚΛΗΜΗΣ ΒΟΓΙΑΤΖΟΓΛΟΥ
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ΕΠΙθΕΩΡΗΣΗ ΟΙΚΟΝΟΜΙΚΩΝ ΕΠΙΣΤΗΜΩΝ - Τεύχος
9 (2006) , 145-166
specialization. More specifically, the low scale economies category exhibits a
high Balassa value ove r the whole period 1981-2002, but shows in recent years a
downward trend with an estimated annual average rate of decline of 2,35% . In
the other extreme lies the high scale economies category, which shows low
specialization indices and remains relatively stable during the whole period.
Interesting and important is the evolution of the intermediate scale economies
industries. AJthough this category exhibited low levels of export specialization
ίη the beginning of the period (a Balassa value of 0,578 in 1981), it achieved a
signi ficant increase in the Balassa indices (a Balassa index of 1,149 in 2002) with
an annual average growth rate of 3,15% . Thus as ίt is evident from Figure 4,
there has been a convergence of the intermediate scale economies activities in
Greece, which reveals an increasing comparative advantage in those activities
within the EU.
3,0
2,5
2,0
lηtt!mf#!lditιle Scιι/e Ecoηomin
1.0
0,5
ο.ο +--+--+----t-+--+--t----t-+--+--t---+-+-+--+---+-t--+--+--+----ι~
~~~;,~~~~#~#~;~,~,~~~~
Fiιure 4. Export specializ.ation in
Greece by importance όf scale economies
Thus far we examined industry characteristics, which concern the technology
and scale economies dimension of export specialization. However, the analysis
conducted so far is a one-dimensional examination, since it considers only one
industry characteristic each time, where the industry sample is categorized
according to one variable only. In order to take a closer look at the factors and
determinants of the observed specialization patterns we next classify our industry
sample according to various industry characteristics. Since we are interested in
the driving forces of export specialization in Greece, these industry characteristics
should reflect on the one hand, traditional sources of specialization, that is
comparative advantage considerations which are the focus of the traditional trade
160
KLIMIS VOGIATZOGLOU - REVIEW OF ECONOMIC SCIENCES - Νο 9 (2006), 145-166
theory as regards international trade and specialization, and οη the other hand,
characteristics that are associated with the new trade theory such as, scale
economίes. Ιη addition, science-related industry-specific characteristics should also
be included in the analysis, which partίally capture new econornic geography
considerations, as science and high-technology sectors exhibit to a large extent
input-output linkages and are geographically agglomerated(7)_ For the purpose of
our analysis, a useful classification of industries is provided by OECD (1987), which
is also used in Brulhart (2000). Specifically, the analysis dίstinguishes the following
industry characteristics-categories (8) .:
1. Labour-intensive lndustries (11 industries ίη our sample)
2. Resource-intensive Industries (6 industries ίη our sample)
3. Scale-intensive Industries (14 industries ίη our sample)
4. Science-intensive Industries (4 industries ίη our sample)
The results, which are depicted ίη Figure 5, indicate that labour-intensive and
resource-intensive industries, which both relate to the traditional comparative
advantage determinants of specialization, clearly dominate Greece's export
specialization ίη the E uropean Union.
3,0
2,5
1,0
0,5
0,0
+--+--Ι-+--+--ΙΙ--+--+-Ι--+--+-+--+--+-+--+---+-+--+---+-+---1
~,,,,~~~~~~~~,~~~~,~~~
Fiιure
(7) In
5. Factors of export specialization pattems in Greece
ιhis
case a classic example is Silicon Valley in California, United
Sιaιes .
(8) In co nιra s ι wiιh the OECD ( 1987) s ιudy, in our analysis we do nοι distinguish "differenιia t ed
goods industries" as a sepa ra ι e category, as the inclusion of this ca ι egory reduces significa nιly
ιhe number of industries for some categories. H oweνer, th is is nοι a problem since we include
the sca \ e-i nten siνe caιegory which captu res in our analysis ιhe effecιs and imporιance of ιh e
new ιrade ιheory.
161
ΚΛΗΜΗΣ ΒΟΓΙΑΤΖΟΓΛΟΥ
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ΕΠΙθΕΩΡΗΣΗ ΟΙΚΟΝΟΜΙΚΩΝ ΕΠΙΣΤΗΜΩΝ
- Τεύχος 9 (2006), 145-166
Οπ
the other hand, scale-intensive and science-intensive industries exhibit
low levels of specialization. This result conforms with ou r previous findings ,
where high technology and medium-high technology industries and industries
with high scale economies seem to play only a minor role ίπ Greece's
specialization structure as witnessed by the low Balassa indices. Apart from
the degree of specialization of Greek manufacturing industries, the evolution
is also of great importance as we can have an appreciation of the effects of the
European economic integration process οπ export specialization patterns. Ιπ
particular, it is interesting to note that labour-intensive and resource-intensive
industries exhibit opposing trends. Thus while the specia lization degree of
labour-intensive activities increased until 1987 and decreased afterwards reaching ίπ 2002 a level which is close to that ofyear 1981- resource-i ntensive
industries experienced a fall ίπ the specialization level up to 1989 and
thereafter it steadily increased and converged toward the level of the labourintensive category.
This development reveals that within the comparative advantage
determinants labour has been playing a greater role ίπ the first years of
Greece's entry into the EU and that one of the effects of European economic
integration was the increase ίπ the relative importance of natural and other
resources ίπ recent years as a factor of Greece's comparative advantage. Οπ
the other hand, scale-intensive and science-intensive activities do ποt exhibit
significant trends during the integration period. There is however, some
increase ίπ the specialization level of science-intensive industries ίπ recent
years. Thus, it seems that the "new" determinants of the new theories of trade
and economic geography are not that "relevant" ίπ the case of Greece.
However, it has to be stressed that these results are by πο means a direct
test of different trade theories and their determinants and effects. Ιπ addition ,
this examination does not constitute a multivariate analysis as cond ucted ίπ a
regression analysis, where the joint effect of various variables can be
examined. Therefore, the final step of our exam ination of the determinants of
the observed specialization patterns ίπ Greece is to transform our industry
characteristics-categories ίπtο industry dummy variables and to regress these
οπ the specialization indices, where the Balassa index serves as the dependent
variable. Thus, we estimate the following regression :
where, δ 1 , δ 2 , δ 3 , and δ 4 are the parameters to be estimated and u ; is the error
term.
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KLIMIS VOGIATZOGLOU - REVIEW OF ECONOMIC SCIENCES - Νο 9 (2006) , 145-166
Table 3. Determinants ofExport Specialίzarion
p-value
t-value
Coefficicnt
Vaήable
LABOUR
1,909
16,935
0,000
RESOURCE
1,678
10,991
0,000
SCALE
0,612
6,130
0,000
SCJENCE
0,358
1,916
0,056
770 observaιioos used for estimatioιι from 1981 to 2002
R2 =0,369
R = 0,608
Adjusted R 2 = 0,366
Ana/ysis ofVariance
Source
of Vaήatioιι
Rcgression
Residual
Total
Sum
ofSquares
ofFrccdom
1.380,357
2.355,694
3.736,051
4
766
770
Νtιιe: Lincιιr
Degrees
Mean
Square
354,089
3,075
Regrc:ssion through tJιe oήgin (the no-intcn:ept model). Tbe total
coostant bccall9C tJιe consιanι is :zero fοι- regression through tJιe oήgin.
sυm
F-νalue
p-νalue
112,213
0,000
of ιιqυιιres is not correcled for
tJιe
The results are reported ίη Table 3. It is evident that the Labour-intensity
and Resource- intensity variables exert a significantly greater effect οη the
observed export specialization ίη Greece than the Scale-intensity and Scienceintensity variables, which generally is ίη line with the situation depicted ίη
Figure 5. Ιη particular, the first three variab les (LABOUR, RESOURCE,
SCALE) are highly statistically different from zero, whereas the SCIENCE
variable is statistically significant only at the 10% level (the p-value is slightly
above the 5% level). These results confi rm that traditional sources of
international trade and specialization have a strong impact οη export
specializa tion patterns of Greek manufacturing industries, while sources and
determinants associated with the new trade theory and the new economic
geography have only a weak impact ο η the specialization patterns of Greece
within the E uropea n U nion.
5. Conclusions
The theory of international economic integration suggests that a process of
regional economic integration leads to a substantial trade expansion,
restructuring of econom ic activities, and increased specialization between
member economies of the regional integration area. Ιη this paper we
investigated the export specialization patterns of Greek manufacturing
industries ίη the course of the European economic integration process and
provided some evidence οη the underlying factors and determinants of
specialization. Ιη particular, our empirical analysis revealed that although
Greece indeed experienced a significant export growth within the E uropean
163
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ΕΠΙθΕΩΡΗΣΗ ΟΙΚΟΝΟΜΙΚΩΝ ΕΠΙΣΤΗΜΩΝ
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Union until the end of the 1980s, thereafter the relative importance of Greek
intra-EU exports declined and continues to exhibit a decreasing trend. In view
of the increased economic integration in the EU with the completion of the
single European market in 1992, this finding is surprising and unexpected and
could point to the significant deterioration of the competitiveness of Greek
exports in the EU in recent years.
Regarding the specialization patterns ίη Greece, which is the focus of this
study, there is a number of important and interesting findings to note. The
highest level of export specialization is found in labour-intensive industries
followed by resource-intensive sectors. Notably, during the whole integration
period these industry categories remain the most important as regards intraEU export specialization of Greece. However, in the course of European
economic integration there has been to a large extent a decline ίη the
specialization degree of labour-intensive industries - especially pronounced in
the Leather, Textile, and Footwear industry - which has not been followed by a
significant upward trend ίη the specialization of large scale producing and
scale-sensitive industries and science and technology-intensive industries. Thus,
it seems that the overall result is a decreasing export specialization of Greece
within the European Union.
Furthermore, although there is a decreasing trend of specialization and
comparative advantage in labour-intensive activities, it is found that traditional
factor endowments and comparative advantage considerations continue to
determine Greece's export specialization. On the other hand, determinants of
the new theories of trade and economic geography seem to be less important in
explaining the observed specialization patterns in Greece. Finally, the fact that
there is a decreasing comparative advantage and at the same time a relatively
high specialization in traditional comparative advantage-related sectors in
Greece, may explain the increased export diversion toward non-EU countries,
which is observed ίη recent years.
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