Export Penetration

BIBLIOGRAPHY

In a world of increased international interdependence, the entry and capture of an increasing share of export markets (or expansion of export market share) plays an important role in a nation’s industrial and overall economic growth. The expansion of export market share by a single product or a group of products is generally referred to in the literature as export penetration. The success or failure in export penetration depends on a host of domestic factors, such as production costs where the product is produced, and foreign factors, such as the degree of competition in foreign markets where the product is sold.

Export–oriented industries or countries can use their level of success in export penetration as a performance indicator. Researchers calculate export penetration ratio(s) to measure the degree of export penetration of industries or countries. In this way they can evaluate their export market performance over time and across industries and countries. Depending on the availability of data, export penetration ratios are measured in many ways. The most commonly used method measures the market share captured by the product(s) in the trading partner’s import market. For example, if in a given year the value of U.S. agricultural exports to Canada is $100 billion (in U.S. dollars) and the value of Canada’s total agricultural imports from all its trading partners is $200 billion, the export penetration ratio for U.S. agricultural exports to Canada is 0.5 (or 50%). This ratio indicates that U.S. agricultural exports to Canada accounted for half of the Canadian market for agricultural imports. Some researchers use other measures such as the proportion (or percentage) of the output exported as a measure of export penetration ratio. An increase in the ratio indicates a successful capture of a larger market share by the exporter, and hence indicates satisfactory market performance.

Export penetration has helped increase both internationalization of economic activity and international integration of economies that contribute to the process of globalization. Export promotion has become a popular development strategy among several developed and developing countries in the recent past. As a result, many countries have carried out economic liberalization and deregulation policies in support of export promotion. Export penetration is of vital importance for the growth of export–oriented industries and the success of these strategies. However, economic liberalization and deregulation policies in developed and developing countries have generated both positive and negative effects on export penetration. On the one hand, they have made export penetration easier by removing barriers to international trade. On the other hand, the removal of barriers has opened up markets for increased competition among exporters in external markets, making it difficult (or easy) for exporters to compete depending on their comparative advantages in international trade. Researchers have linked the level of productivity directly to the degree of export penetration.

SEE ALSO Absolute and Comparative Advantage; Competition; Exchange Rates; Exports; Globalization, Social and Economic Aspects of; Import Penetration; Imports; Productivity; Trade; Trade Deficit; Trade Surplus; Trade, Bilateral

BIBLIOGRAPHY

Eaton, Jonathan, Samuel Kortum, and Francis Kramarz. 2004. Dissecting Trade: Firms, Industries, and Export Destinations. The American Economic Review 94 (2): 150–154.

Hine, Robert C., and Peter W. Wright. 1998. Trade with Low Wage Economies: Employment and Productivity in UK Manufacturing. Economic Journal 108: 1500–1510.

Meredith, Lindsay N., and Dennis R. Maki. 1992. The United States Export and Foreign Direct Investment Linkage in Canadian Manufacturing Industries. Journal of Business Research 24 (1): 73–88.

Wimal Rankaduwa