What Drives Export Market Shares? It Depends! An Empirical Analysis Using Bayesian Model Averaging

Abstract

What drives external performance of countries? This is a recurring question in academia and policy. The factors underlying export growth are receiving great attention, as countries struggle to grow out of the crisis by increasing exports and as protectionist discourses take foot again. Despite decades of debates, it is still unclear what the drivers of external performance are and, importantly, which ones policy makers can influence. We use Bayesian Model Averaging in a panel setting to investigate the drivers of export market shares of 25 EU countries, considering a wide range of traditional indicators along with novel ones developed within the CompNet Competitiveness Research Network. We find that export market share growth is linked to different factors in the old and in the new Member States, with one exception: for both groups, competitive pressures from China have strongly affected export performance since the early 2000s. In the case of old EU Member States, investment, quality of institutions and available liquidity to firms also appear to play a role. For the new EU Member States, labour and total factor productivity are particularly important, while inward FDI matters rather than domestic investment. Price competitiveness does not seem to play a very important role in either set of countries: relative export prices do show correlation with export performance for the new Member States, but only when they are adjusted for quality. Our results point to the importance of considering the "exporting stage" of a country when discussing export-enhancing policies.

Keywords: export shares, competitiveness, bayesian model averaging

JEL Classification: C23, C51, C55, F14, O52