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| 03.02.2010 |
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An excerpt from "Recent Economic Developments (September - December 2009)"
currently under preparation. |
| The Market Share of Israel's Export of Goods |
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Over the past decade, there has been a significant increase in the share of the group of large emerging economies, i.e. Brazil, India, China and Russia, in global output and imports while the share of Israeli exports in the total imports of these countries has declined on average. |
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Israel's market share is high in countries whose imports include a high share of chemicals and office and communication equipment. |
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Israel has a high market share in countries that are closer geographically (e.g., Turkey) and those with a large GDP (e.g., the US). |
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Trade agreements with individual countries (Canada, Egypt, Turkey and Mexico) helped increase the market share of Israel’s exports. |
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The export of Israeli goods to important economies, such as Germany, France and China, is smaller than expected given their distance from Israel and other basic economic variables. |
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The findings indicate that it is important to find ways of encouraging trade with other countries and primarily large emerging economies, such as China and Russia. |
| While Israel’s market share in the export of goods to the US is relatively high, it is relatively low for other developed countries[1] and for the large emerging economies (Brazil, India, China and Russia). Over the past decade, the share of the large emerging economies in global output and imports has increased significantly, while the share of the US in global imports has fallen, a trend that is working against Israeli exports. In what follows, we will examine the export of Israeli goods to some ninety countries and will compare Israel’s market share in a number of them. This is done on the basis of several variables that influence the share of Israel’s exports in those countries' imports, including the composition of their imports, distance from Israel, the existence of a trade agreement, etc. |
| In order to analyze the factors that influence Israeli’s market share in the various countries, we estimated a trade model[2] to explain the share of Israel’s export of goods within each country’s total imports of goods (excluding oil). The model included the following variables:[3] GDP[4] which represents the size of the target market, GDP per capita which represents the target market’s level of development, distance from Israel, the existence/non-existence of a trade agreement[5] and the share of various categories of goods in total imports (excluding oil).[6] The sample period used is 1990–2008. A positive connection was found between the importing country’s GDP and the share of Israeli exports in its total imports (excluding oil) and a negative relation was found for distance from Israel. No effect was found for a trading partner’s GDP per capita or for the existence of a trade agreement, on average. Israel’s market share was relatively high in countries whose imports include a high share of chemicals and office and communication equipment, in which Israel enjoys a relative advantage. In contrast, Israel’s market share was relatively low for countries whose imports have a high share of traditional manufactured goods. |
| In order to rank the countries, we compared Israel’s actual market share in the imports of each target country (excluding oil) to the predicted share given its distance from Israel, GDP, composition of imports, etc. It was found that the shares of Israel’s exports in the imports of the US, India and Brazil were higher than predicted (“surplus share”) relative to the majority of countries in the sample. In contrast, the share of Israeli exports within the imports of China and most of the EU countries, especially Germany and France, was relatively low. The finding with regard to the European countries can be explained by the close trade relations within the EU. A calculation of the gap between actual Israeli exports and the levels predicted by the regression in nominal terms for the years 2007-08 shows that Israeli exports to important economies such as Germany, France and China are lower than their potential levels by more than $100 million for each of those countries. |
| We examined the change in the share of Israeli exports to the various countries between the years 2000 and 2008 (using the same model with the addition of a control for the year) and found a significant improvement in Israeli exports to Cyprus,[7] Turkey, Brazil and Finland. In contrast, there was a significant worsening in the share of Israeli exports to China, Russia and most of the European countries, including Austria, Switzerland and Germany (which is most likely the result of increased trade between the European countries during the last decade). |
| Israel has particularly close trade relations with the US. Israel’s market share of goods imported to the US is 0.7 percent, which is at least twice its share in other countries. This is particularly significant taking into account the considerable distance between the two countries. Nonetheless, when the effect of US trade is neutralized in the model (by adding a dummy variable for the US), there was no major effect on these findings. Thus, Israel’s market share remained relatively low for the imports of China, Germany and France and relatively high for India and Brazil. The change in the regression specification affected the size of the coefficients and their level of significance but not their signs. |
| We also examined Israel’s market share in countries with which Israel has a trade agreement.[8] This was done by comparing the market share of Israeli exports during the year or two prior to the agreement taking effect and the average during the five or six years following. From this point of view, the findings appears to be mixed: all the trade agreements signed with individual countries (Canada, Mexico, Egypt and Turkey) increased the share of Israeli exports in their imports; however, the trade agreements signed with the EU[9] and EFTA did not increase Israel's market share in their imports (on average). This can be explained by the tightening of trade relations between the European countries. |
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| [1] The following developed countries were included in the analysis: Sweden, Finland, Denmark, Iceland, Norway, Britain, The Netherlands, Belgium, Luxembourg, Germany, Switzerland, Austria, France, Spain, Portugal, Italy and Japan |
| [2] In the spirit of the gravity model. The basic gravity model, which is the one most commonly used to estimate international trade flows, was used to estimate Israel's trade with its trading partners using measures of economic size, such as GDP or total imports, and the distance of these countries from Israel. |
| [3] All the variables in the model, apart from the existence of a trade agreement, are expressed in natural logs. |
| [4] Throughout the analysis, GDP and GDP per capita are expressed in terms of their ratio to the corresponding global variables. |
| [5] The data for trade agreements was taken from the site of the Ministry of Industry, Commerce and Employment. |
| A dummy variable was created for the existence of trade agreements with the aforementioned countries, with account taken of when the agreement went into effect. This is a complex task since the agreements do not apply to all traded goods and were put into effect in stages rather than all at once. In addition, Israel’s trade agreement with the EU was signed subsequent to a number of previous trade agreements with some of the EU countries in the 1970s. |
| [6] Trade data was taken from the WTO site. The classification is according to the SITC (Standard International Trade Classification). |
| [7] The high surplus share of Israel's exports to Cyprus may reflect Cyprus's status as a transshipment point for goods destined for countries with which Israel does not have direct trading relations. |
| [8] The analysis was done for six trade agreements that Israel has signed in the last 18 years. |
| [9] The EU countries included in this category were those who signed a trade agreement that went into effect in 1995. |
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