Skip to main content

Advertisement

SpringerLink
Log in

Power laws in EU country exports

  • Original Paper
  • Published:
Empirica Aims and scope Submit manuscript

Abstract

International trade flows are highly concentrated in the top units of analysis. In this paper, we study the size distribution of exports at the product level, using Comext data for the 28 EU countries over the period 2002–2014. We fit power law relationships running log rank–log size regressions. The estimated Pareto exponent may be interpreted as a single measure of the inequality between the top products; it thus constitutes an alternative to other measures of export diversification. The Pareto exponent estimates are quite stable for most EU countries between 2002 and 2014. However, some countries stand out for their increase or decrease in the Pareto exponent. Some preliminary evidence suggesting negative correlation between volatility in EU country exports and export diversification at the product level is also provided.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2
Fig. 3
Fig. 4
Fig. 5
Fig. 6
Fig. 7
Fig. 8

Similar content being viewed by others

Notes

  1. Table 6 in the Appendix reports summarised statistics for the EU countries in 2002 and 2014.

  2. An alternative strategy would be to fix a specific number of top products (e.g. N = 250) for all EU countries. The results are essentially the same, however, with some differences for the smallest countries like Cyprus and Malta.

  3. High R&D intensity countries are Finland, Sweden, Denmark, Germany, Austria, France, Belgium, Slovenia and Netherlands. Medium R&D intensity countries are the United Kingdom, Luxembourg, the Czech Republic, Ireland, Estonia, Spain, Italy, Portugal, Hungary and Croatia. The low R&D intensity group is formed by Lithuania, Poland, Greece, Slovakia, Malta, Latvia, Bulgaria, Romania and Cyprus. Data for 2014 is mostly provisional. The available data for some countries have a shorter time span than 2002–2014. See http://ec.europa.eu/eurostat/statistics-explained/index.php/R_%26_D_expenditure for further details.

  4. The Theil index is given by the expression \(T = \frac{1}{N}\sum\nolimits_{i = 1}^{N} {\left( {\frac{{X_{i} }}{{\bar{X}}}} \right)} ln\;\left( {\frac{{X_{i} }}{{\bar{X}}}} \right)\), where X i represents the exports of product i for a given country, N is the number of exported products, and \(\bar{X} = \frac{1}{4}\sum\nolimits_{i = 1}^{N} {X_{i} }\). After ranking the products by export value, the Gini index is \(G = 1 + \frac{1}{N} - \left( {\frac{2}{{\bar{X}N^{2} }}} \right)\sum\nolimits_{i = 1}^{N} {(N - i + 1)X_{i} }\). The Herfindahl index is simply the sum of squared shares of export lines, \(s_{i} = \frac{{X_{i} }}{{\sum\nolimits_{i = 1}^{N} {X_{i} } }}\). The Theil and Gini indexes were computed using the ineqdeco Stata code written by Stephen P. Jenkins.

  5. Greece is a special case, with an exaggerated increase in its Theil index. This is highly likely due to the disproportionate weight of oil and petroleum exports, with a share over 0.3, which have grown rapidly over the last decade.

  6. The great presence of multinationals in Ireland makes this country a special case. Approximately 90% of manufacturing exports is accounted for by foreign-owned multinationals (see, e.g., O’Brien and Scally 2012). The high concentration of Irish manufacturing exports occurs in sectors such as chemicals and pharmaceuticals. These facts are clearly important in explaining the very low level of volatility shown in Fig. 8.

References

  • Acemoglu D, Carvalho VM, Ozdaglar A, Tahbaz-Salehi A (2012) The network origins of aggregate fluctuations. Econometrica 80:1977–2016

    Article  Google Scholar 

  • Agosin MR, Alvarez R, Bravo-Ortega C (2012) Determinants of export diversification around the World: 1962–2000. World Econ 35:295–315

    Article  Google Scholar 

  • Amurgo-Pacheco A, Pierola MD (2008) Patterns of export diversification in developing countries: intensive and extensive margins. World Bank Policy Research Working Paper 4473

  • Arkolakis C, Costinot A, Rodríguez-Clare A (2012) New trade models, same old gains? Am Econ Rev 102:94–130

    Article  Google Scholar 

  • Axtell RL (2001) Zipf distribution of US firm sizes. Science 293:1818–1820

    Article  Google Scholar 

  • Black D, Henderson V (2003) Urban evolution in the USA. J Econ Geogr 3:343–372

    Article  Google Scholar 

  • Bottazzi G, Pirino D, Tamagni F (2015) Zipf law and the firm size distribution: a critical discussion of popular estimators. J Evol Econ 25:585–610

    Article  Google Scholar 

  • Cadot O, Carrère C, Strauss-Kahn V (2011) Export diversification: what’s behind the hump? Rev Econ Stat 93:590–605

    Article  Google Scholar 

  • Cadot O, Carrère C, Strauss-Kahn V (2013) Trade diversification, income, and growth: what do we know? J Econ Surv 27:790–812

    Article  Google Scholar 

  • Camanho da Costa Neto N, Romeu R (2011) Did export diversification soften the impact of the global financial crisis? IMF Working Paper WP/11/99

  • Canals C, Gabaix X, Vilarubia JM, Weinstein D (2007) Trade patterns, trade balances, and idiosyncratic shocks. Bank of Spain Working Papers no. 721

  • Carvalho VM, Gabaix X (2013) The great diversification and its undoing. Am Econ Rev 103:1697–1727

    Article  Google Scholar 

  • Chaney T (2008) Distorted gravity: the intensive and extensive margins of international trade. Am Econ Rev 98:1707–1721

    Article  Google Scholar 

  • Cirillo P, Hüsler J (2009) On the upper tail of Italian firms’ size distribution. Phys A 388:1546–1554

    Article  Google Scholar 

  • De Benedictis L, Gallegati M, Tamberi M (2009) Overall trade specialization and economic development: countries diversify. Rev World Econ 145:37–55

    Article  Google Scholar 

  • Del Rosal I (2013) The granular hypothesis in EU country exports. Econ Lett 120:433–436

    Article  Google Scholar 

  • Dennis A, Shepherd B (2011) Trade facilitation and export diversification. World Econ 34:101–122

    Article  Google Scholar 

  • Devadoss S, Luckstead J (2016) Size distribution of U.S. lower tail cities. Phys A 444:158–162

    Article  Google Scholar 

  • Di Giovanni J, Levchenko AA (2012) Country size, international trade, and aggregate fluctuations in granular economies. J Polit Econ 120:1083–1132

    Article  Google Scholar 

  • Di Giovanni J, Levchenko AA, Ranciere R (2011) Power laws in firm size and openness to trade: measurement and implications. J Int Econ 85:42–52

    Article  Google Scholar 

  • Di Giovanni J, Levchenko AA, Mejean I (2014) Firms, destinations, and aggregate fluctuations. Econometrica 82:1303–1340

    Article  Google Scholar 

  • Easterly W, Reshef A (2016) African export successes: surprises, stylized facts, and explanations. In: Edwards S, Johnson S, Weil DN (eds) African successes, Volume III: Modernization and development. University of Chicago Press, Chicago (forthcoming)

    Google Scholar 

  • Easterly W, Reshef A, Schwenkenberg J (2009) The power of exports. World Bank Policy Research Working Paper 5081

  • Eaton J, Kortum S, Kramarz F (2011) An anatomy of international trade: evidence from French firms. Econometrica 79:1453–1498

    Article  Google Scholar 

  • Eeckhout J (2004) Gibrat’s law for (all) cities. Am Econ Rev 94:1429–1451

    Article  Google Scholar 

  • Eurostat (2015) User guide on European statistics on international trade in goods. Publications Office of the European Union, Luxembourg

    Google Scholar 

  • Feenstra RC (1994) New product varieties and the measurement of international prices. Am Econ Rev 84:157–177

    Google Scholar 

  • Funke M, Ruhwedel R (2001) Export variety and export performance: empirical evidence from East Asia. J Asian Econ 12:493–505

    Article  Google Scholar 

  • Funke M, Ruhwedel R (2002) Export variety and export performance: empirical evidence for the OECD Countries. Rev World Econ 138:97–114

    Google Scholar 

  • Gabaix X (2009) Power laws in economics and finance. Annu Rev Econ 1:255–293

    Article  Google Scholar 

  • Gabaix X (2011) The granular origins of aggregate fluctuations. Econometrica 79:733–772

    Article  Google Scholar 

  • Gabaix X (2016) Power laws in economics: an introduction. J Econ Perspect 30:185–206

    Article  Google Scholar 

  • Gabaix X, Ibragimov R (2011) Rank-1/2: a Simple way to improve the OLS estimation of tail exponents. J Bus Econ Stat 29:24–39

    Article  Google Scholar 

  • Giesen K, Suedekum J (2014) City age and city size. Eur Econ Rev 71:193–208

    Article  Google Scholar 

  • Head K, Mayer T (2014) Gravity equations: workhorse, toolkit, and cookbook. In: Gopinath G, Helpman E, Rogoff K (eds) Handbook of international economics, vol 4. Elsevier, Amsterdam, pp 131–195

    Google Scholar 

  • Helpman E, Melitz MJ, Yeaple SR (2004) Export versus FDI with heterogeneous firms. Am Econ Rev 94:300–316

    Article  Google Scholar 

  • Hinloopen J, Van Marrewijk C (2006) Comparative advantage, the rank-size rule, and Zipf’s law. Tinbergen Institute Discussion Paper TI 2006-100/1

  • Hinloopen J, Van Marrewijk C (2012) Power laws and comparative advantage. Appl Econ 44:1483–1507

    Article  Google Scholar 

  • Hummels D, Klenow PJ (2005) The variety and quality of a nation’s exports. Am Econ Rev 95:704–723

    Article  Google Scholar 

  • Imbs J, Wacziarg R (2003) Stages of diversification. Am Econ Rev 93:63–86

    Article  Google Scholar 

  • Klinger B, Lederman D (2004) Discovery and development: an empirical exploration of “new” products. World Bank Policy Research Working Paper 3450

  • Klinger B, Lederman D (2006) Diversification, innovation, and imitation inside the Global Technological Frontier. World Bank Policy Research Working Paper 3872

  • Koren M, Tenreyro S (2007) Volatility and development. Q J Econ 122:243–287

    Article  Google Scholar 

  • Mau K (2015) Export diversification and income differences reconsidered: the extensive product margin in theory and application. Rev World Econ 152:351–381

    Article  Google Scholar 

  • Melitz M (2003) The impact of trade on intra-industry reallocations and aggregate industry productivity. Econometrica 71:1695–1725

    Article  Google Scholar 

  • Melitz M, Redding S (2014) Heterogeneous firms and trade. In: Gopinath G, Helpman E, Rogoff K (eds) Handbook of international economics, vol 4. Elsevier, Amsterdam, pp 1–54

    Google Scholar 

  • Minondo A (2011) Does comparative advantage explain countries’ diversification level? Rev World Econ 147:507–526

    Article  Google Scholar 

  • Neary JP (2010) Two and a half theories of trade. World Econ 33:1–19

    Article  Google Scholar 

  • O’Brien D, Scally J (2012) Cost competitiveness and export performance of the Irish economy. Cent Bank Irel Q Bull 3:86–102

    Google Scholar 

  • Parteka A (2010) Employment and export specialisation along the development path: some robust evidence. Rev World Econ 145:615–640

    Article  Google Scholar 

  • Parteka A (2013) Trade diversity and stages of development-evidence on EU countries. Ekonomia 30:23–44

    Google Scholar 

  • Parteka A, Tamberi M (2013a) What determines export diversification in the development process? Empirical assessment. World Econ 36:807–826

    Article  Google Scholar 

  • Parteka A, Tamberi M (2013b) Product diversification, relative specialisation and economic development: import export analysis. J Macroecon 38:121–135

    Article  Google Scholar 

  • Peng G (2010) Zipf’s law for Chinese cities: rolling sample regressions. Phys A 389:3804–3813

    Article  Google Scholar 

  • Regolo J (2013) Export diversification: how much does the choice of the trading partner matter? J Int Econ 91:329–342

    Article  Google Scholar 

  • Schaffar A, Dimou M (2012) Rank-size city dynamics in China and India, 1981–2004. Reg Stud 46:707–721

    Article  Google Scholar 

  • Segarra A, Teruel M (2012) An appraisal of firm size distribution: does sample size matter? J Econ Behav Organ 82:314–328

    Article  Google Scholar 

  • Shepotylo O (2013) Export diversification across countries and products: do Eastern European (EE) and Commonwealth of Independent States (CIS) countries diversify enough? J Int Trade Econ Dev 22:605–638

    Article  Google Scholar 

Download references

Acknowledgements

I would like to thank the editor for his help and two anonymous referees for their comments that substantially improved the paper. Financial support from the Consejería de Educación, Cultura y Deporte del Principado de Asturias, is acknowledged.

Author information

Authors and Affiliations

  1. Department of Applied Economics, University of Oviedo, Avenida del Cristo s.n., 33006, Oviedo, Spain

    Ignacio del Rosal

Authors
  1. Ignacio del Rosal
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Ignacio del Rosal.

Appendix

Appendix

See Table 6.

Table 6 Descriptive statistics (2002 and 2014)
Full size table

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

del Rosal, I. Power laws in EU country exports. Empirica 45, 311–337 (2018). https://doi.org/10.1007/s10663-016-9362-2

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10663-016-9362-2

Keywords

JEL Classification

Search

Navigation