Competitiveness of India's Manufactured Exports: A Constant Market Share Analysis

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Abstract

In this study, an attempt has been made to examine the international competitiveness of India's manufactured exports. The paper analyses India's export competitiveness by Constant Market Share (CMS) model attributable to commodity composition effect, market distribution effect, world trade effect and competitiveness effect. The paper found that manufactured sector of India remained competitive and non-manufactured exports might have been uncompetitive, rendering the competitiveness effect to the unfavorable during the period 1990-2000 and during 1990-2005 for total exports. The competitiveness effect was found to be unfavorable for chemical during the second and third sub-period and for machinery & transport equipment during the first and second sub-period.

INTRODUCTION

Competitiveness is a hotly-debated topic among economists. There has been increasing worldwide awareness among economists to improve competitiveness at global level. Competitiveness may be defined as the ability of a country to improve its sales in international and national markets at the expense of its competitors. A country's competitiveness must be judged not only against its performance in the world market but also in terms of its capacity to sustain economic growth over a period of time.

Manufactured exports have been recognised as an engine of growth of an economy. Manufactured exports of India have been increasing since 1980s with the opening up of the economy and dominate nearly 70 per cent of the total merchandise exports. Manufactured exports of India consist of four sub-sections-chemicals, basic manufactured goods, machinery & transport equipments and miscellaneous manufactured goods. Considering the rapid development of manufactured exports, paper seeks to measure competitiveness of manufactured exports and reasons for growth of manufactured exports by applying constant market share analysis. Accordingly the paper has been divided into three sections. Section I discusses data base and methodology, section II analysis trends in competitiveness of manufactured exports at disaggregated level, while section III examines growth of manufactured exports by applying constant market share technique.

I

To measure competitiveness of manufactured exports, various measures like composition and market share of manufactured exports, compound annual growth rates, revealed comparative advantage index and constant-market-share model have been used. Data at one digit level of SITC classification for total exports, total manufactured exports and sub sections namely chemicals, basic manufactured goods, machinery & transport equipments and miscellaneous manufactured goods have been collected from various issues of Unctad Handbook of Statistics, UN Tradecom.

GROWTH RATES

To analyse the competitiveness of Indian manufactured exports at disaggregate level compound annual growth rates have been worked out for the three periods of time i.e. 1980-90 (pre-reform period), 1992-2005 (post-reform period) and 1980-2005 (whole period). The positive and increasing value of growth rates shows increase in competitiveness, while the negative and decreasing value of growth rates shows decrease in competitiveness. Compound annual growth rates have been calculated by using following formula:

Y= A[B.sup.t]

Where Y = value of exports of commodity

Growth rate = ([??]-1) x 100 t = time period

REVEALED COMPARATIVE ADVANTAGE INDEX (RCAI)

Revealed Comparative Advantage Index (RCAI) is one of the most applied tools to measure the export competitiveness of a manufacturing sector. Developed by Balassa (1965, 1979), the RCAI is defined as a ratio of the share of particular industry (or product) in a country's total exports to the share of the industry's exports in world's total exports. Thus, the [[(RCAI.sup.i]).sub.a] can be presented as: [[(RCAI. …