Magazine 2015
International Peer-Reviewed Journal
RESEARCH HORIZONS, VOL. 5 JULY 2015
THE ROLE OF INTENSIVEAND EXTENSIVE MARGINS IN
INDIA’S EXPORT BASKET
Falguni Desai
ABSTRACT
The paper examines the growth in export of India along Intensive and Extensive margins ndia to 8 country
groups classified on the basis of income: High income OECD plus non-OECD countries (51), Least Developed
countries(48), Low and Middle income East Asia and Pacific countries (24), Low and Middle income
Europe (22 ), Low and Middle income Latin America and Caribbean countries (29 ), Low and Middle
income Middle East and North Africa (12 ), Low and Middle income South Asia(08) and Sub Sahara Africa
(47 ). The main findings of the study are: i) growth in exports was mainly accounted for by intensive margins
and ii) extensive margins were important for Low and Middle income country groups.
Key Words : Exports, Trade, Intensive & Extensive margins JEL classification: F10, F14
Introduction :
The total exports of India to the world increased from US $ 21522 million to US $ 226351 million during
the period from 1993 to 2010. The Compound average growth rate of exports was 9.66 percent between
1
993 and 2000 and 17.93 percent between 2000 & 2010. Given this huge increase in exports we are
interested in finding out: How has the geographical distribution of exports of India evolved over time?
Has the growth in exports taken place along intensive or extensive margins? Exports can grow if countries
can export more of the products they are already trading, which is defined in the literature as the intensive
margin. Countries can sell already traded products to new markets, or countries can sell new products
that were not exported before, the so called extensive margins. In terms of growth of exports at the
margins, in line with international evidence, we find that most of the growth in exports has occurred at the
intensive margins. But extensive margins in growth of exports of India to Low and Middle income country
groups are important. The rest of the paper is organized as follows. In Section 2 we discuss the data
sources used in the study, Section 3 examines the direction of exports to 8 country groups, Section 4
studies the Intensive and Extensive margins of exports Section 5 brings out the main conclusions of the
study.
2
.0 Data Sources :
In order to study the changes in the shares of different regions in a country’s total exports, and role of
intensive and extensive margins of trade, disaggregated data, comparable over a long period of time is
used.
WITS database provides a list of standard country groups, of which we have considered list of country
groups classified on the basis of income. There are 8 standard country groups, namely: High income
OECD plus non-OECD countries (51), Least Developed countries (48), Low and Middle income East Asia
and Pacific countries ( LDCEAP: 24 ), Low and Middle income Europe ( 22 ), Low and Middle income
Latin America and Caribbean countries ( LDCLAC:29 ), Low and Middle income Middle East and North
Africa ( LDC MNA: 12 ), Low and Middle income South Asia(LDCSAsia: 08) and Sub Sahara Africa (SSA:47),
which we have taken as sample country groups for the present study.
The intensive and the extensive margins of total exports of India to world and 8 country groups is examined
in section 4 of the paper for, which we employ highly disaggregated data available at SITC 5 digit level
for the years1993, 2000, and 2010. While, the Harmonized system of classification has been widely used
because it contains highly disaggregated data, there have been frequent revisions. We therefore, prefer
to use SITC classification due to better consistency. The data is sourced from UNcomtrade and WITS
data base.
3
.0 Direction of exports :
An important question concerning the exports of India is, whether significant changes in the share and
direction of exchange has taken place or not. Export share to a region/country, tells us how important
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RESEARCH HORIZONS, VOL. 5 JULY 2015
a particular trade partner is in terms of the overall profile of an economy. Changes in the export shares
over time may indicate that the economies in question are becoming more integrated. A high value for a
region indicates greater importance of selected region. We examine the major trends in overall shares of
exports of India to eight groups of countries.
…
………… (see Table1)…………..
Some of the major observations are:
·
The share of High income OECD plus non-OECD countries in total exports of India has declined, but
they still continue to absorb the largest shares of exports from India. The share of this group of
countries in total exports from India fell from 69.33 percent in 1993 to 58.24 percent in 2010.
·
·
The share of LDC EAP countries in total exports from India tripled to 14.6 percent in 2010.
Thus, we see that although the High income OECD plus non- OECD countries have dominant shares;
a significant increase in the share of the remaining country groups has taken place, although from a
small base.
So, the next question is: Has the growth in exports been along the intensive or extensive margins? The
following section answers these questions.
4.0 Intensive and Extensive Margins of Trade :
It was only recently that trade in new goods, i.e. at ‘extensive margins’ has begun to attract a great deal
of attention
4.1 Review of Literature :
There is abundant literature, which provides empirical evidence linking greater variety of products to
trade liberalization, regional trading arrangements, country size and levels of per capita income and
growth of trade. Feenstra and Kee (2005) find significant increase in Mexico’s export variety, since NAFTA
went into effect and also find evidence that china was catching up in terms of increase in exporting
product variety. Kandagon (2003) analyzing the increase in transition countries exports to their non-
traditional partners, report not only increased specialization but also an increase in variety in product
categories. Hillbery and McDaniel (2002) found that commodities that were not exported to NAFTA
markets in 1993 were exported and industries in the USA were facing competition from the NAFTA
markets.
Besedeus and Prusa (2011) decompose the aggregate growth of exports into extensive margins, survival
and deepening intensive margins for 27 developed and developing countries for a period from 1973 to
2
003, and find that all countries experienced an increase in extensive margins, and that the survival of
exports of the USA and East Asian tigers was much larger than that of the developing countries & Latin
America. Berthelon (2009) study on growth of Chilean exports find that almost 50 percent of export
growth between 1999 & 1990 occurred at extensive margins, but growth in exports in subsequently was
due to intensive margins. Brenton and New farmer (2007) find that exports of developing countries were
primarily driven by growth at the intensive margins, while the extensive margins contributed little to the
export growth of developing countries. Felbermayr and Kohler (2006) find that extensive margin played
a larger role in the growth of world trade between 1950 and 1970 and again in the mid 1990s, while the
intensive margins was more important in the intervening years. Kang (2006) provide evidence that extensive
margins have played an important role in increasing the exports of Korea and Taiwan and their study
finds that more varieties were exported to rich countries. Hummels and Klenow (2004) found that the
larger economies exported higher volumes of each good (intensive margins), a wider set of goods (the
extensive margins), and exported higher quality of goods. Amiti and Freund (2010) decompose China’s
exports along intensive and extensive margins for the period from 1992 to 2006 and conclude that
exports growth was largely the result of intensive margins, where as the share of extensive margin i.e. new
products and new markets comprised 5 percent to 15percent of export growth.
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.2 Methodology and Results :
RESEARCH HORIZONS, VOL. 5 JULY 2015
4
Following Amiti & Freund (2007) and Feenstra (2005) we decompose the growth in exports of India
along the intensive and the extensive margins and derive the index of variety. Intensive margins is defined
as export growth due to expanding trade of existing goods and extensive margins is due to exports of
new products and to new markets. The decomposition of trade growth is as follows:
………….(2)
Vti
=
=
Value of trade at time t in Product i (V = p q )
ti ti ti
E
I
I
I
Indicator variable that is one if the product was exported in both period t and period o (existing
products)
to
D
to
=
=
Indicator variable that is one if the product was exported in period o and not in period t
(disappearing products)
N
to
Indicator variable that is one if the product was exported in period t and not in period o (new
products)
This is an identity where total growth in trade relative to the base period is decomposed into three parts:
i) the growth in products that were exported in both periods, the intensive margin; (ii) the reduction in
(
export growth due to products no longer exported, disappearing goods; and (iii) the increase in export
growth due to the export of new products. This decomposition indicates the extent to which churning
has taken place in the exports of a country. In order to measure increase or decrease in the variety of
commodities exported we employ the Feenstra index of variety, which is defined as follows:
The Feenstra index of variety:
………….(3)
The index will be equal to one if there is no growth in varieties relative to the base period and less
greater) than one if the number of varieties has grown (declined).
(
4
.3 Simple Product Count Method :
At a basic level, we start by looking at the number of products exported by India to 8 country groups in
993, 2000 & 2010. We look at total number of active export lines and disappearing products from the
1
export basket between two time periods. We define an active export line, if product x was exported from
India to country group i in period t. Disappearing product lines are defined as a product x, which was
exported in period t but not in period t + 1.
…
…….(See Table 2)……..
Table 2 shows the number of active export lines and number of disappearing products form India’s
export basket for the year 1993, 2000 & 2010. For instance, India exported a total of 562 products in
1993 to LDCLAC, which increased to 1758 in 2010. But on the other hand, the disappearing products are
a cause of concern. India exported a total of 728 in 1993, 1108 in 2000 and 1701 in 2010 to Low and
Middle income Europe, of which175 products have disappeared between 1993 and 2000 and there were
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72 products, which were no longer exported in 2010, but were exported in the year 2000. Similarly, of
the 984 total active export lines to LDCMNA in 1993and 1444 in the year 2000,154 products which were
being exported in 1993 were no longer exported in 2000 and the corresponding number for the year
2012 was 144. This kind of an analysis gives a broad picture of the churning which has taken place in the
export basket.
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RESEARCH HORIZONS, VOL. 5 JULY 2015
4
.4 Digging Deeper: Analyzing Intensive and Extensive Margins of 8 country groups
To understand the role of intensive and extensive margins in growth of total exports of India to world and
to 8 country groups, we decompose the growth in exports along the intensive, extensive margins and
disappearing margins as defined earlier in this section. Table 3 and 4 present the summary statistics of
the findings:
The total growth of export from India to the world during the years 1993 and 2000 and between 2000 and
2
010 was 90 percent and 318 percent respectively. We find that most of the growth in exports during the
period 1993-2000 was along the intensive margins. New or extensive margins contributed 2.76 percent of
total exports in 2010. The Feenstra’s Index of variety was less than unity, implying that growth in variety
had taken place during this period in India.
…
……( see Table 3)…………
……(see Table 4)………
The total growth of exports from India to all the 8 country groups was higher during the decade 2000
2010 when compared to 1993 – 2000, and was again largely driven by intensive margins. For
instance, during the period 1993-2000, of the total growth in exports of 310.77 percent to LDC LAC
and 194.7 percent to SSA, the intensive margins were 81.74 percent and 95.08 percent, and the
extensive margins were 19.2 percent and 5.79 percent respectively.
…
·
·
–
Similarly, during the decade 2000-2010, of the total increase in exports of 700.21 percent to LDC
EAP, 640.7 percent to LDC EAP and 542.6 percent to LDC LAC, the contribution of the intensive
margins to this phenomenal increase in exports was 85.1 percent, 90.16 percent and just about
1
1.40 percent respectively. The contribution of extensive margins to total growth in exports to LDC
EAP was 15.18 percent, LDC MNA was 10.87 percent and in case of LDC LAC, the extensive margins
contributed 102.67 percent of the total growth in export. Thus, in the case of LDC LAC the growth in
exports was largely due to extensive margins, unlike in the case of LDC EAP and LDC EAP where
growth in exports was largely accounted for by intensive margins of trade. Similarly, of the total
growth in export of 313 percent to Low and Middle income Europe, 33.58 percent was due to
extensive margins. But two points need to be highlighted so that the role of extensive margins in
increasing the total growth of exports is not overtly exaggerated in context of Low and Middle
income country groups. Firstly, the huge increase in the total growth of exports to 7 country groups
with exception of High income OECD plus non-OECD countries from India was from a very low base.
For instance, the share of LDC EAP in total exports of India in 1993 was 5.81 percent which increased
to 14.68 percent in 2010 (see Table 1). So, if the total growth in exports during the period 2000-2010
was 700.21 percent, of which extensive margins were 15.18 percent, than the contribution of extensive
margin viewed in this context does not appear to be significant. Secondly, the disappearing margins
of trade for LDC EAP, Low and Middle income Europe, LDC LAC and LDC MNA are also quite high.
In other words, sustainability seems to be an issue.
·
The Feenstra index so calculated, which denote change in variety was also less than the critical
value of one, implying that there was an increase in the variety of products being exported. The
values of the index for LDC EAP, Low and Middle income Europe, LDC LAC for the decade 2000-
2
010 was 0.88, 0.77, and 0.56 respectively. While, comparing the value of the Feenstra index for
respective country groups, we find that value of the index is less than one for all country groups,
except High income OECD plus non-OECD country groups in both the periods.
5
.0 Conclusions :
We have undertaken a detailed analysis of the changes in direction of exports of India and the contribution
of intensive and extensive margins in total growth of exports for a period from 1993 to 2010. Although the
High income OECD plus non- OECD countries continue to enjoy dominant shares of exports, a significant
increase in the share of the remaining seven country groups classified on the basis of income has taken
place, although from a small base. We find that most of the growth in exports during the period 1993-
2
000 was along the intensive margins and the New or extensive margins contributed to 2.76 percent of
total exports in 2010. The value of the Extensive margins for Low and Middle income groups of countries
are high, but considering the share of these country groups in total exports of India, we can conclude it
was not significant.
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RESEARCH HORIZONS, VOL. 5 JULY 2015
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Appendix 1
Table 1 - Direction of India’s Exports
Source: Author’s calculations based on WITS data base
Table 2 : A simple count method of India’s Export lines to 8 Groups of Countries
(
SITC 5 digit level)
Source: Author’s calculations based on WITS data base
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RESEARCH HORIZONS, VOL. 5 JULY 2015
Table 3 Intensive & Extensive Margin of India’s Export
993-2010
1
Source: Author’s calculation based on WITS data base
Table 4 Intensive and Extensive Margins of India w.r.t 8 country groups
Source: Author’s calculations based on data from WITS database
Dr. Falguni Desai, Associate Professor, Dept. of Economics, Maniben Nanavati Women’s College, Mumbai.
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