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✦

2012
✦

Volume 18, Number 1

IN ECONOMICS AND FINANCE

current issues

FEDERAL RESERVE BANK OF NEW YORK

Why Is the U.S. Share of World
Merchandise Exports Shrinking?
Benjamin R. Mandel
As the U.S. share of the world goods trade slips from its level in
the 1980s and 1990s, concerns have arisen that the productivity
of U.S. exporters has not been growing as fast as that of foreign
firms selling similar products. However, an analysis of industrylevel trade data suggests that two other factors explain much
of the drop in export share: the changing composition of the
products traded internationally and the diminished share of
U.S. GDP in global output. Declining relative productivity may
have played a role in the early 2000s, but it has not been a large
factor across industries over the longer term. Overall, there is
little evidence of a broad-based decline in the nation’s ability
to compete in global markets.

he U.S. market share of world merchandise exports has declined sharply over
the past decade. Throughout the 1980s and 1990s, approximately 12 percent
of the value of goods shipped globally originated in the United States; by 2010,
the share had dropped to only 8.5 percent. Some observers have sought to explain the
nation’s diminished role in merchandise trade by suggesting that U.S. industry has
shifted its energies from the export of goods to the export of services. As we shall see,
however, the trade data offer no support for such an argument; in fact, they show that
the U.S. share of world services exports also plummeted over the last decade.
How, then, can we account for the United States’ flagging merchandise export
performance? Have U.S. manufacturing firms simply become less competitive than
their foreign counterparts? Underlying this concern is the fear that, over time, the
productivity of U.S. firms has fallen relative to that of foreign firms selling similar
products (Box 1).1 Declining relative productivity would mean that U.S. firms were
less able to price competitively against other exporters—a disadvantage that would
lead to a loss of revenue share in common export markets.
This edition of Current Issues investigates the factors driving the fall in the U.S.
export share and, to the extent possible, attempts to determine how big a role the
changing productivity of U.S. firms relative to their competitors has played. The
most direct way to address this question would be to compute relative productivity
measures for all U.S. export industries. However, in many instances, and particularly
for international comparisons, the existing data are not detailed enough to gauge this
directly. Thus, we take a different approach, considering other factors that might have
lowered the U.S. export share and assessing the extent to which they can explain the
observed decline. The portion of the export contraction that remains unexplained after
1 In a prominent example of

this view, Jeffrey Immelt, chief executive officer of General Electric and chair
of the President’s Council on Jobs and Competitiveness, said: “We need a coordinated commitment among
business, labor, and government to expand our manufacturing base and increase exports. . . . For example,
we have returned many GE appliance manufacturing jobs to the [United] States by collaborating with our
unions and making our operations more efficient” (Washington Post, January 21, 2011).

CURRENT ISSUES IN ECONOMICS AND FINANCE ❖ Volume 18, Number 1

we take these factors into account provides some measure of the
effect of declining relative productivity, or of reduced competitiveness more generally.
We find that two alternative factors can account for much
of the decline in the U.S. export share. The first relates to the
composition of world trade. If the rest of the world is increasingly trading goods that the United States does not produce, then
the U.S. export share will fall—even if U.S. firms remain just as
productive as their competitors in the goods that they do export.
When we investigate this possibility by decomposing changes in
the U.S. market share into contributions from individual product
groups, we find that only a handful of products contributed to
the share decline. Among those that did contribute, a significant
part of the decline was indeed driven by the shrinking fraction
of world trade claimed by those products. While we also find that
the United States lost ground to its competitors in the export of
certain products that were expanding briskly as a share of world
trade—in particular, machinery and transportation products—
the change in the overall U.S. export share cannot be interpreted
as a simple proxy for the nation’s reduced competitiveness.
The second factor that helps explain the declining U.S. export
share is the relatively slower growth rate of the U.S. economy
relative to that of its competitors. In a large body of research, the
size of a nation’s economy has been shown to be an important
determinant of the size of its international trade flows, with larger
countries both importing and exporting more. Therefore, the
brisk rate of, say, China’s GDP growth relative to that of the United
States would imply a higher Chinese share and a lower U.S. share
in any product traded by both countries.
To assess the effect of GDP dynamics on the U.S. export
share—and to distinguish this effect from changes in productivity—we conduct an empirical exercise in which we relate the

Box 1

Relative Export Productivity and the Gains
from Trade
Determining if the relative productivity of U.S. firms is falling has
important implications for assessing the benefits that the United States
derives from engaging in international trade. Changes in the welfare
gains from trade can be represented as changes in the ratio of a country’s
export prices to its import prices, with greater welfare arising when a
country’s exporting firms receive higher prices or when its consumers or
importing firms pay lower prices. According to this taxonomy, classical
trade theory would view deepening trade integration with emerging
market economies and the associated decline in import prices as a boon
to the aggregate gains from trade in spite of the negative effect on U.S.
global export share. However, the effect of rising foreign productivity in
U.S. export industries would decrease the price that U.S. firms receive
for their export sales and hence decrease the size of U.S. gains from trade
and the overall level of U.S. welfare.

Chart 1

U.S. Share of World Exports
Percent
30

Percent
14
13

Merchandise

Scale

10
9

8
5

Services

Scale

6
1984 86

0
06

Sources: Aggregate U.S. and world merchandise trade data: Haver Analytics.
Services data: United Nations Service Trade Statistics Database, available at
http://unstats.un.org/unsd/servicetrade/.
Notes: Market shares are computed using current U.S. dollars. The services data
include the following categories: transportation, travel, communications,
construction, insurance, financial services, computer and information services,
royalties and license fees, other business services, recreational services, and
government services.

nation’s export market share to its GDP share, geographic factors
(such as the distance between import and export markets), and
relative productivity. GDP share and geographic factors are easier
to measure than productivity, and therefore our approach will be
to subtract out their effect on market share. When we purge trade
flows between pairs of countries of the effects of GDP growth and
geography, what is left over—the residual—contains information
about the exporter’s productivity. One such residual measure is
estimated below which, insofar as it is inferred from actual trade
flows, is referred to as revealed competitiveness. Our calculations
show that the United States’ diminished share of global output
accounts for about half of the decline in the U.S. export share.
Flagging relative productivity may have played a role in export
contraction in the early 2000s, but does not emerge as a large
factor in the decline of the U.S. share of merchandise exports
over the longer term.

The Decline of the U.S. Export Share
From 1984 to 2010, the U.S. share of global exports of goods
fell by almost one-third.2 Through 1999, it was fairly stable at a
level of roughly 12 percent, then dropped 3.5 percentage points
between 2000 and 2010 (Chart 1). For a subset of countries that
report data on the export of certain services, we are able to
construct an analogous measure of the U.S. services market
share for the 2000-08 period (also shown in Chart 1). Clearly,
the decline in U.S. share in the 2000s was not particular to
merchandise exports: the services measure fell precipitously
2 We use the terms goods and merchandise interchangeably in our analysis. We

reserve the terms sector and product for narrower categories of traded goods.

Chart 2

Sector Contributions to the Aggregate U.S. Share Decline
1984-2008

Box 2

Decomposing Changes in Market Share
A useful way of accounting for the overall change in the U.S. share of
world merchandise exports is to distinguish the contributions made
by individual product sectors. This approach entails computing
the appropriately weighted market share of each sector. Our first
decomposition breaks down the changes in U.S. export sales into ten
sectors, denoted by an i, and divides the sales in each sector by the
change in the total value of world exports:

Other
Mineral fuels
Animal and vegetable products
Chemicals
Beverages and tobacco
Manufactured goods by material
Miscellaneous manufactures

i
10
ΔXUS
ΔXUS
=∑
ΔXWORLD i =1 ΔXWORLD

Crude materials
Food and live animals
Machinery and transportation
-2.0 -1.8 -1.6 -1.4 -1.2 -1.0 -0.8 -0.6 -0.4 -0.2

0.2

Percentage points

Sources: UN-NBER bilateral merchandise trade data; author’s calculations.

from its initial value of about 25 percent before stabilizing in
the later years at just above 5 percent. While the data’s incomplete
coverage of countries and services makes it difficult to ascribe
too much precision to the services share levels, the dynamics of
the services market share are remarkably similar to those of the
goods market share. This finding rules out the argument that a
U.S. industry shift from manufactured goods exports to services
exports explains the drop in the U.S. share of merchandise exports.
In light of the limited data available on the services trade,
we focus exclusively on merchandise trade in our effort to identify the forces underlying the nation’s declining export market
share. As a first step, we calculate the contributions that different
product groups have made to the 3.5 percentage point fall in the
goods export share (Chart 2). For this exercise, we use detailed
international data—available through 2008—that break down
world trade into several hundred disaggregated products
(Box 2).3 Grouping the products in the U.S. export data into
broad sectors, we observe that virtually every sector registered
a decrease in market share over the period from 1984 through
2008. The sector that contributed the most to the overall decline
in share was machinery and transportation equipment, which
alone accounted for half of the decrease in the U.S. export share
over that period. This large contribution in part reflects the fact
that machinery and transportation-related products represent
almost half of U.S. exports. Within that sector, the declines in the
U.S. share of office machine and computer exports are particularly striking, dropping from about a third of total world sales to
just under one-tenth.
The vast majority of the remaining share losses were recorded
in commodities categories, which account for approximately a
quarter of U.S. export sales over the twenty-five years examined.
3 Bilateral industry-level trade flows for merchandise are based on National
Bureau of Economic Research–United Nations [NBER-UN] Trade Data compiled
by Feenstra et al. (2005) and extended through 2008 using COMTRADE data.

Since the contributions of all i ’s add up exactly to the 3.5 percentage
point decline observed in the overall U.S. share, this measure provides
a simple way of examining how evenly distributed the overall change is
across broad economic units. Also note that this same decomposition
can be applied easily to more narrowly defined products, with the only
difference being the larger number of i ’s and the lower level of each
product’s contribution.
Next, we distinguish changes in the U.S. market share that are related
to the nation’s competitiveness from those that reflect only the changing
composition of the global set of traded goods. One established method
of assessing the importance of composition for changes in trade shares
is constant market share analysis. It involves separating the changes in
aggregate market share into two components: a commodity effect and
a competitiveness effect. These effects correspond to the intensive and
extensive effects described in the text, and are defined as follows:
i
10
⎛ Xi
⎞ 10 ⎛
ΔXUS
Xi
Xi ⎞ Xi
≈ ∑ i US ⋅ ⎜ Δ WORLD ⎟ + ∑ ⎜ Δ i US ⎟ ⋅ WORLD
ΔXWORLD i =1 XWORLD ⎝ XWORLD ⎠ i =1 ⎝ XWORLD ⎠ XWORLD

Commodity (Extensive)

Competitiveness (Intensive)

The commodity (extensive) effect measures the role of composition in
a change in the aggregate export share. By weighting the change in the
size of a sector in world trade by the average share of U.S. exports in
that sector, we approximate what would have happened to the overall
share if the U.S. piece of the pie (that is, share in each sector) had stayed
constant and only the size of the pie (that is, the size of each sector) had
changed. The competitiveness (intensive) effect measures the portion
of the aggregate share change that is attributable to the U.S. share of
exports within each sector; that is, it approximates the effect of holding
the size of the pie constant and changing only the size of the U.S. slice.
In other studies, the constant market share approach often includes an
additional “market effect” related to the idiosyncratic characteristics of
each export destination market. For ease of exposition, we have focused
only on the commodity effect, in a sense wrapping the market effect into
our measurement of the competitiveness effect.
For a more detailed description of constant market share analysis
and for an example of how it has been recently applied to measuring
competitiveness, see di Mauro et al. (2005). Note, however, that this
technique is beset by a number of well-documented theoretical
problems, and the interested reader is referred to Richardson (1971)
for an overview of those. In spite of these problems, the approach
remains informative for our purposes.

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For instance, the contributions of crude materials (a category
that includes, among other things, metals and minerals with low
levels of processing) and food and live animals added up to about
1.5 percentage points, accounting for 43 percent of the overall
change in the U.S. share.4
The importance of commodities for the decline in the U.S.
share offers our first reason to resist interpreting aggregate
export share statistics as direct evidence of declining competitiveness. Commodity prices fell over most of the period under
consideration and, since the exports of the United States are
relatively commodity-intensive, it follows that U.S. revenue from
commodity sales—and hence the U.S. share of world exports—
would fall as well. This point is reinforced by price trends for
those individual products within the commodities categories
that contributed the most to the share decline. For instance,
the prices of corn and soybeans fell in the late 1990s and then
remained at this lower level until 2006, when they began to rise.
This pattern of prices corresponds closely to the rapid decline in
the U.S. export share at the beginning of the past decade and its
leveling off in the middle of the decade. Thus, it appears likely
that movements in the U.S. export share partly reflect commodity price fluctuations—as opposed to being driven entirely by
changes in U.S. competitiveness.
Commodity price effects aside, the importance of foods for
explaining the overall decline in the U.S. export share is still
somewhat surprising given food’s relatively small share in U.S.
exports. Note, however, that the contribution of each sector occurs
along both an “intensive” and an “extensive” margin. Expressed
differently, the decline in the U.S. aggregate share reflects both a
decline in market share within each sector (the intensive margin),
as well as a decline stemming from changes in the size of each
category relative to world exports (the extensive margin). For
instance, corn contributes to the decline in U.S. aggregate share
both when the United States captures a smaller proportion of
the corn-specific export market and when corn’s share of overall
world exports declines. Intensive margin changes are more
closely related to competitiveness, since they gauge the size of the
“slice of the pie” held by U.S. exporters, whereas extensive margin
changes relate to the size of a given product or sector—that is,
they measure the size of the pie itself without regard to how it
is split among competing exporters. If we adhere to a definition
of competitiveness that focuses on the intensive margin, it does
not matter whether a country gains market share in slow- or
fast-growing sectors, but only that it increases its market share.
Arguably, a country would prefer to specialize more deeply (and
gain market share) in faster-growing sectors. That said, over our
relatively short period of analysis, it is probably reasonable to
assume that the sector composition of exports by any given
country does not change that much.
4 Another third of a percentage point is accounted for by miscellaneous
manufactured products, which primarily includes footwear, clothing, apparel,
furniture, and certain scientific or photographic apparatus, and manufactured
goods classified by material, which includes material-intensive products such as
textiles, metal and mineral manufactures, pulp, paper, and rubber.

Chart 3

Intensive and Extensive Margin Contributions
to the Aggregate U.S. Share Decline
1984-2008
Other
Mineral fuels
Animal and vegetable products

Overall
Intensive
Extensive

Beverages and tobacco
Chemicals
Manufactured goods by material
Miscellaneous manufactures
Crude materials
Food and live animals
Machinery and transportation

-3.0 -2.5 -2.0 -1.5 -1.0 -0.5 0.0
Percentage points

0.5

1.0

Sources: UN-NBER bilateral merchandise trade data; author’s calculations.

In the second step of our analysis of the changing U.S. export
share, we decompose the overall contributions of each sector
into intensive and extensive effects over the 1984-2008 period
(Chart 3).(For more detail on the calculations, see Box 2.) Our
conjecture that commodity prices and other factors unrelated to
competitiveness are at play is supported by the fact that both the
food and live animals sector and the crude materials sector have
large negative extensive margin effects. Thus, the large negative
contributions of the two sectors for the most part reflect the
declining importance of these goods in world merchandise
exports, although U.S. exports also suffered a negative intensive
effect in each case. In contrast, the negative overall contributions
of machinery and transportation, miscellaneous manufactured
products, and chemicals can be completely attributed to a decline
in U.S. competitiveness, because these sectors increased their
weight in world exports over the time frame under consideration.
In sum, we have seen that compositional effects make it difficult to attribute all of the observed decline in U.S. export share
to the nation’s faltering competitiveness. The commodities sector
was one of the primary drivers of the decline, yet its contribution to export share losses largely derived from the declining
weight of commodities in the world export basket as well as the
price fluctuations of these goods. That said, the United States did
experience large declines in share in machinery, transportation
products, miscellaneous manufactures, and chemicals that no
doubt reflected ground lost to competitors within those sectors.
In the case of these export sectors, the evidence of a fall in U.S.
competitiveness is more compelling.
The next section focuses on U.S. export performance within
more narrowly defined industries and attempts to identify
the drivers of the intensive margin effect more precisely. An
empirical methodology is suggested that produces a more finely
tuned measure of competitiveness: exporter market share after

Chart 4

Export and GDP Shares
Percent
24

Percent
14

United States

Percent
6

United Kingdom

GDP share

Scale

GDP share

Scale

10
9

Export share

14
12
1980

Percent
5

Scale

Percent
7

2000

Scale

10
Percent
14

Germany

0
1980

0
85

Percent
5

Scale

10
Percent
7
6

Scale

Export share

2000

France

6
5

7
6

Export share

GDP share

Scale

GDP share
Scale

3
2

1
0
1980

2
0
85

Percent
5

2000

Export share
Scale

GDP share

1
0

1980

Percent
6

Italy

Percent
12

2000

10
Percent
12

Japan

10
GDP share

Scale

Export share
Scale

1
0
1980

2000

0
1980

2
0
85

2000

controlling for changes in the relative market size of trading
partners. This measure is termed revealed competitiveness.

growing domestic market for goods in these countries may
provide a boon to their exporters simply because of the larger
scale of production.

Calculating Revealed Competitiveness

Evidence of a relationship between a country’s export performance and its output appears in Chart 4, which plots the share
of global exports alongside the share of global GDP for several
countries. In the case of the United States, the GDP share, like
the export share, was fairly steady leading up to the year 2000.
Subsequently, the fall in the U.S. share of global exports of about
3.5 percentage points through 2008 corresponded to a decrease
in the U.S. share of global GDP of about 4.5 percentage points.

One possible explanation for the intensive margin decline in
the U.S. export share is simply that the nation now accounts for
a smaller share of global output. As emerging market economies
expand rapidly and become more integrated with the global
economy, it is natural that the U.S. share of world exports would
fall; the decline does not necessarily imply any drop-off in the
relative productivity of U.S. exporters. By extension, the fast-

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Chart 4 (Continued )

Export and GDP Shares
Percent
2.5

Percent
6

Canada
GDP share

Scale

2.0

Percent
2.5

Spain

2.0

GDP share
Scale

1.5

Export share

3
Export share

1.0

Scale

0
85

Percent
14

2000

1.0

0.5

1980

Scale

1.0

1980

Percent
12

China

Percent
6

2000

10
Percent
1.6

India

1.4
1.2

GDP share

1.0

Scale

GDP share
Scale

6
4

0.8

Scale

Export share
Scale

2
0
1980
Percent
2.0

2000

0.6

Export share

Percent
3.5

Korea
GDP share

3.0

Scale

1.5

2.5
Export share
Scale

0.2
0
1980

Percent
1.2

2000

10
Percent
2.5

Taiwan

1.0

2.0

0.8
GDP share

2.0

1.5

Export share

Scale

0.6

1.0

0.4

Scale

1.5
1.0

0.5

0.5
0

0
1980

2000

1.0
0.4
0.5

0.2

0
1980

2000

Sources: Haver Analytics; author’s calculations.

The relatively tight correlation between export share and
GDP share holds true for many other countries as well. Among
the Group of Seven countries, France, the United Kingdom, Italy,
Canada, and Japan have experienced declines in export share that
broadly match their declining share of world output. The biggest
exception to this pattern is Germany, which has more or less maintained export share even as its share of world output has declined.
Turning to the export-intensive Asian economies, we note that, in

percentage terms, the export share growth of both China and India
has moved upward in tandem with their GDP shares.
The implication of the Chart 4 patterns is that changes in
market share may be conflating competitiveness effects with
country characteristics such as output dynamics. To control
for such characteristics and isolate the contribution of relative
productivity to changes in country export shares, we construct

a measure of export share growth that subtracts out the contribution of country size. To this end, we use a model of international trade flows called the gravity model.
Like its namesake in the physical sciences, the gravity model
specifies that the size of trade flows is proportional to the size
(or mass) of the two trading partners and factors such as tariffs,
transportation costs, and other trade costs (or distance). The
model has a strong empirical track record and has been the
subject of a battery of empirical tests and applications. Several
previous studies have used it to decompose the levels of bilateral
trade flows into contributions from GDP, trade costs, and other
factors.5 Consistent with the graphic evidence presented in our
Chart 4, these studies find that exporter and importer outputs
play substantial, even dominant, roles in explaining trade. Our
approach extends this logic to the case of relative trade performance, where the gravity equation is “folded” into an equation
relating an exporter’s market share to its GDP share, its relative
productivity, and relative geographic factors such as the distance
between the export and import markets.6 The average relationship
between export share, GDP share, and geography is then estimated
for each product in the bilateral trade data set; the residual—that
is, what is left over after GDP and geographic factors are accounted
for—is a measure of the export share that contains more precise
information about changes in an exporter’s relative productivity.
Is this residual an exact measure of relative productivity?
Probably not. Our empirical exercise does not control for policy
changes such as a foreign country’s decision to decrease its tariffs,
a move that would increase the volume of exports flowing to that
country from other nations. We do control for large-scale shifts in
policy such as the introduction of the North American Free Trade
Agreement and the establishment of the European Economic and
Monetary Union. Nonetheless, the residual likely captures elements
of falling trade costs in addition to relative productivity. A phenomenon closely related to falling trade costs is the recent growth in
the incidence of international outsourcing, in which certain stages
or tasks in a production process take place in a foreign country.
Increased outsourcing would also show up in our measure of
revealed competitiveness, since more goods are being traded for
the production of the same amount of final outputs. Consequently,
with this exercise we are jointly estimating relative performance attributable to productivity and these additional factors, all of which
fit into a reasonable, if broad, definition of export competitiveness.

the Penn World Table.7 We then run a gravity regression for
each of the several hundred products in the data set. With our
estimates of the average relationships between exports, GDP,
and geographic factors for each product, we decompose the U.S.
export share into a portion explained by these factors (that is,
a model prediction) and a portion not explained by these factors (that is, a residual). We interpret the residual as a measure
related to changing productivity and trade costs.
The main results of our estimation are summarized in Chart 5.
Adding up all of the products, the chart illustrates the relative
quantitative importance of the model prediction and the residual
components of the overall U.S. export share. The chart presents
two measures of the overall share, one based on aggregate statistics
(as in Chart 1) and the other on the detailed product-level trade
data used for the gravity regressions. Note that the two measures,
though drawn from different data sources, correspond very closely.
Overall, the model prediction tracks much of the decline in
the U.S. market share. In 2008, at the end of the sample period,
the model prediction is about 15 percent below its level in the
year 2000, accounting for about half of the 30 to 35 percent drop
in the U.S. share. The residual, our measure of revealed competitiveness, accounts for the other half. The ability of the model to
track the decline in the U.S. market share is closely related to the
positive correlation between the country’s GDP share and export
share observed in Chart 4. However, we have now quantified how
meaningful a relationship this is in units of market share and
significantly narrowed the portion of market share change that
could be attributed to changing relative productivity.
While the model is effective overall in accounting for half of
the cumulative market share change over the sample period, it
performs better in some periods than in others. This finding,
in turn, has implications for our interpretation of the dynamics of U.S. relative productivity. In particular, the model tracks
the flat periods in the market share series (that is, 1994-2000,
2005-08), but misses the decline in U.S. share in the early 2000s.
By contrast, the residual declined sharply in the beginning of the
2000s—an indication that relative productivity fell at that time,
before stabilizing in the middle of the decade. Overall, Chart 5
shows that U.S. relative productivity, albeit in decline by this
measure of revealed competitiveness, did not decline by nearly
as much as the fall of the U.S. export share might suggest.

For our estimation, we use the bilateral trade flow data described
in this article’s first section as well as nominal GDP data from

Moreover, this result obtains broadly across product categories.
Even in the categories of machinery and transportation, where
U.S. share performance was particularly weak and exclusively
driven by changes in the intensive margin, a significant share of

7 The Penn World Table, available at http://pwt.econ.upenn.edu/, is published by

Data and Results

See, for example, Baier and Bergstrand (2001) and, more recently, Whalley and
Xin (forthcoming) and Novy (forthcoming).
6 “Folding” entails dividing the bilateral trade flows in the gravity equation by
those of a particular exporting country, a step that has the benefit of simplifying
the equation by canceling out several importer-specific terms.

the Center for International Comparisons at the University of Pennsylvania. We
follow previous studies by excluding very small trade flows; this precaution avoids
potential distortions from errors of units in the data and from implausibly small
trade values. The remaining data account for more than 80 percent of global trade
value between 1980 and 2008.

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Conclusion

Chart 5

Predicted and Actual Measures of the U.S. Share
of World Merchandise Exports

The downward drift in the U.S. share of world merchandise trade
stems from a number of sources, and does not appear to signal
a dire loss of relative productivity for U.S. exporters as a group.
A substantial portion of the nation’s declining export share over
the past fifteen years is explained by compositional factors—the
shifting make-up of global exports and the smaller share of overall
exports claimed by some key U.S. products—and by the changing
size of the U.S. economy relative to that of its competitors. These
findings argue against treating the export share of a country as a
wholly reliable measure of its competitiveness.

Percent
110
105
100

Model prediction

95
90

Export share based on
product-level data

85
80

Residual

75
70
Export share based on aggregate data

65
60
1994

Sources: Aggregate data: Haver Analytics. Product-level data, model prediction, and
residual: UN-NBER bilateral merchandise trade data; author’s calculations.
Note: All data are indexed to the base year 1994.

the decline can be accounted for by GDP and geographic factors.
Further, the percentage change in the residual for machinery and
transportation was roughly equal to that for crude materials and
food and live animals, categories that had much smaller intensive
margin share declines.
As for the other exporters in our data set, clear winners and
losers emerge. Indonesia, China, India, and Mexico had among
the highest increases in their residual—that is, the greatest
gains in their competitiveness—by a large margin, as their
export growth far outpaced the increase in their GDP shares.
By contrast, certain large Asian exporters had dramatic falls
in their residuals, presumably owing to the rise of China and
large increases in Mexican exports to the United States over
the sample period. European countries and Canada had more
moderate changes in their export performance and, with a few
exceptions, tended to lag behind the rest of the world.
One factor that likely contributed to the more extreme gains
and losses experienced by some countries is cross-border production sharing. Countries that make intensive use of foreign inputs
in their production processes would record higher exports for a
given unit of output independent of exporter productivity. This
factor may be behind some of the high measures of performance
that we estimate for China and Mexico. Analogously, the losses in
competitiveness that we find for East Asian countries excluding
China may owe something to the large flows of goods passing
through China for final assembly. Though beyond the scope of this
article, an interesting extension of our line of research would be to
estimate countries’ revealed competitiveness while controlling for
the extent of international production in their industries.

In this article, we have presented an alternative measure of
exporter competitiveness that controls for changes in the overall
composition of exports and GDP dynamics. Even our revealed
competitiveness measure, however, may not be an entirely
accurate gauge of relative productivity. As we have seen, the
measure may be capturing a number of factors unrelated to
productivity, including commodity prices, evolving trade costs,
and the international outsourcing of production processes. These
ambiguities make it even more difficult to conclude that we are
witnessing a broad-based decline in the ability of U.S. firms to
compete in global markets.

The empirical methodology and results in this article draw on joint work with
Massimo Del Gatto of G. d’Annunzio University, Filippo di Mauro of the European
Central Bank, and Joseph Gruber of the Board of Governors of the Federal Reserve
System. For a more detailed exposition of the methodology and results, interested
readers are referred to International Finance Discussion Paper no. 1026, available
at http://www.federalreserve.gov/pubs/ifdp/.

References
Baier, Scott L., and Jeffrey H. Bergstrand. 2001. “The Growth of World Trade:
Tariffs, Transport Costs, and Income Similarity.” Journal of International
Economics 53, no. 1 (February): 1-27.
Del Gatto, Massimo, Filippo di Mauro, Joseph Gruber, and Benjamin R. Mandel.
2011. “The Revealed Competitiveness of U.S. Exports.” Board of Governors of
the Federal Reserve System, International Finance Discussion Paper no. 1026,
August.
di Mauro, Filippo, et al. 2005. “Competitiveness and the Export Performance
of the Euro Area.” European Central Bank Occasional Paper Series, no. 30, June.
Feenstra, Robert C., Robert E. Lipsey, Haiyan Deng, Alyson C. Ma, and Henry Mo.
2005. “World Trade Flows: 1962-2000.” NBER Working Paper no. 11040, January.
Novy, Dennis. Forthcoming. “Gravity Redux: Measuring International Trade Costs
with Panel Data.” Economic Inquiry.
Richardson, J. David. 1971. “Constant-Market-Shares Analysis of Export Growth.”
Journal of International Economics 1, no. 2 (May): 227-39.
Whalley, John, and Xian Xin. Forthcoming. “Regionalization, Changes in Home
Bias, and the Growth of World Trade.” Journal of Policy Modeling.

ABOUT THE AUTHOR
Benjamin R. Mandel is an economist in the International Research Function of the Federal Reserve Bank of New York.
Current Issues in Economics and Finance is published by the Research and Statistics Group of the Federal Reserve Bank of New York.
Linda Goldberg, Erica L. Groshen, and Thomas Klitgaard are the editors.
The content co-editor of this article is Mary Amiti.
Editorial Staff: Valerie LaPorte, Mike De Mott, Michelle Bailer, Karen Carter, Anna Snider
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The views expressed in this article are those of the author and do not necessarily reflect the position
of the Federal Reserve Bank of New York or the Federal Reserve System.

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CURRENT ISSUES IN ECONOMICS AND FINANCE ❖ Volume 18, Number 1

Articles and Papers
Available at http://www.newyorkfed.org/research/publication_annuals/index.html

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Outsourcing and Pass-Through

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Full text of Current Issues in Economics and Finance : Why Is the U.S. Share of World Merchandise Exports Shrinking?, Volume 18, Issue 1

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