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Energy intensity and energy supply

An in increase in energy supply is estimated to boost exports in relatively energyintensive sectors though estimated impacts are somewhat smaller as compared to factor endowments or credit availability. Coefficients are correctly signed and highly significant in all model specifications. A one standard deviation increase in energy supply indicator could result in about 4 to 7% increase in exports, on average. Such an increase would be equivalent to increasing energy supply from the ratio observed in Israel in 2005 (average minus one standard deviation) to the level of Sweden (average) or equivalently from the level of Sweden to the level of Canada or Estonia (Annex Figure 6.B4).

This means that availability and affordability of energy can be an important determinant of export performance, a finding that that should certainly be deliberated together with environmental considerations associated with higher energy intensity.

Input concentration and doing business climate

The results on the impact of regulatory quality, the rule of law or the control of corruption on exports of industries with relatively high dispersion of intermediate inputs are mixed. The results are insignificant or incorrectly signed in models estimated as a cross-section for 1995 and as a 1995-2005 panel. The 2005 cross section yields expected signs and highly statistically significant point estimates with respect to these regulatory indicators. The higher significance of 2005 results could be explained by the fact that data on intermediate input concentration come from the GTAP database benchmarked to 2004, thus yielding a potentially more relevant correspondence between the sector characteristics, doing business indicators and observed trade flows. The 2005 estimates would indicate a very strong influence of this type of regulatory characteristics on industry trade patterns, with sectors characterised by higher dispersion of intermediate inputs exporting significantly more in countries with better regulations.

The standardised coefficients suggest that the importance of this source of comparative advantage can be compared to the impact of average years of schooling or indeed capital-to-labour ratios. The potential for future changes in trade patterns driven by changes in regulatory quality across countries would be equally as high. Our estimates indicate that, for example, moving up the 2005 regulatory quality in China (about average regulatory quality less one standard deviation) to the level of regulatory quality in Poland (about average) would bring about 80 to 103% average increase in Chinese exports. Equivalently, moving up the regulatory quality in Poland to the level observed in Denmark or the Netherlands (average plus one standard deviation) would be estimated to boost Polish exports on average by the same proportion.

 
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