5.2.1 Overview of PDI, motivation and data treatment

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Global Statistics - Composite Indices for International Comparisons

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University of Geneva

Global Statistics - Composite Indices for International Comparisons

4 classificações

The number of composite indices that are constructed and used internationally is growing very fast; but whilst the complexity of quantitative techniques has increased dramatically, the education and training in this area has been dragging and lagging behind. As a consequence, these simple numbers, expected to synthesize quite complex issues, are often presented to the public and used in the political debate without proper emphasis on their intrinsic limitations and correct interpretations. In this course on global statistics, offered by the University of Geneva jointly with the ETH Zürich KOF, you will learn the general approach of constructing composite indices and some of resulting problems. We will discuss the technical properties, the internal structure (like aggregation, weighting, stability of time series), the primary data used and the variable selection methods. These concepts will be illustrated using a sample of the most popular composite indices. We will try to address not only statistical questions but also focus on the distinction between policy-, media- and paradigm-driven indicators.

Na lição

Export Potential Assessment (ITC)

This module focuses on trade indices developed by the International Trade Centre, the Export Potential Index (EDI) and the Product Diversification index (PDI). Frictions often create a gap between what a country could export and what it does export to markets around the world. Trade advisers could better address these frictions and help firms realize greater exports if they knew exactly which products and markets offer best chances. During this week, you will learn about the Export Potential Assessment (EPI and PDI), which indicates products, sectors and markets for trade development activities for over 200 countries and 4,000 products. Based upon an assessment of the exporting country’s supply capacity, the target market’s demand and tariff conditions as well as the bilateral links between the exporting country and the target market, it provides a ranking of untapped opportunities.

5.2.1 Overview of PDI, motivation and data treatment5:27

5.2.2 The product space methodology6:50

5.2.3 Dimensions of the index: supply and demand sides, and results7:54

5.2.4 User perspective2:33

Conheça os instrutores

Stefan Andreas Sperlich
Professor
GSEM, Research Center for Statistics
Juan Manuel Rodriguez Poo (in Partnership with UNIGE)
Professor
Departamento de Economía, Universidad de Cantabria

Welcome to the presentation of the Product Diversification Indicator,

which is the second indicator of ITC's export potential assessment methodology.

In this sequence, I will introduce the PDI to speak about its main data sources

and introduce it into the general framework of export potential assessments.

The final indicator of the PDI will not be a US dollar value as we have seen for the EPI,

but it will be a rank,

a rank of a new product for export diversification in a given target market.

The reason for that is that in EPI,

we were able to capture supply capacities based on historical trade information.

With the PDI, we do not have this possibility.

You want to indicate to countries that are sometimes resource-focused

or that have a rather narrower export basket because they are

just at a very low stage of economic development.

We also want to suggest new products for export diversification.

So we want to look a little bit into the future.

That means we cannot rely on historical trade information to measure supply capacity.

We use a different approach.

We use the so-called product space methodology,

invented by Hausmann and Hidalgo,

to give an idea of

what new products countries could possibly diversify into in the future.

And since this is much more uncertain than what we do with the EPI,

we cannot express the final result in US dollar terms,

but we simply give a rank of the product in a given target market.

Demand and market access conditions follow exactly the same approach as in the EPI.

That means we also use exactly the same data sources to measure

these two variables as we used in the Export Potential Indicator.

What differs is how we measure supply conditions.

In the PDI, we rely on the so-called product space methodology that establishes

links between products exported by all countries in the world.

Again, the product space methodology relies on trade information.

And this trade information is again taken from ITC's trade map.

But we do something on top of that.

The products that the product space methodology identified as

feasible are filtered against

the availability of natural resources in the countries under analysis.

There are two filters we apply.

The first one is,

we identify which are

the relevant climatic zones in Western regimes to produce and export certain goods.

And if the country under analysis does not

process these climatic zones on Western regimes,

we would remove the products from the list of feasible diversification opportunities.

The second filter we apply is landlocked status.

If a country is landlocked and is suggested to diversify into sea-related products,

we would again remove them if we observe that no other country that

is also landlocked has ever managed to export these products successfully.

So, for these two filters,

we obviously need different data sources,

we need information on the landlocked status,

and we need information on the climatic zones.

And we take this information from the Global Agricultural Land Use database from GTAP.

Coming to the economic framework,

as I already mentioned,

the demand and the market access conditions

are just as in the Export Potential Indicator.

To really apply the same economic framework as an EPI,

we need however a different measure of supply capacity.

We cannot rely on historical trade information that was used to compute

the comparative advantages which were the supply side measure of the EPI.

So what we do is we take the product space methodology,

and based on that,

we compute all linkages between the products that the country already exports with

comparative advantage to new products that it might be able to diversify into.

And we take these linkages,

this measure of linkages as a new supply measure,

as a new measure to indicate supply capacities of the country and analysis.

And then, we combine the supply side measure again with demand and

market access conditions as in the Export Potential Indicator.

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