Market shares in the post-Uruguay round era: A closer look using shift-share analysis

Shift-Share Analysis aims to break down total change of economic indicators into various components to identify underlying sources of growth or decline. A key feature is that the unit of analysis (e.g. a city, a region or a country) exists within a broader frame of reference that strongly influences it (e.g. a national productive system or the world economy). It is based on the principle that total change can be disaggregated into contributing factors and any change that can not be accounted for by these factors can be interpreted as the 'local contribution' to that total change. This method has been subject to many refinements. Because the objectives of this paper are both didactic and analytic, traditional Shift-Share Analysis is applied to international trade. It uses the 'constant market share' assumption by decomposing the growth of exports into four separate components: a global component (GLOBO) indicating changes due to overall growth of world trade, a geographical component (GEO) indicating changes due to the country's distribution of trading partners, a product composition component (COMPO) indicating growth due to the mix of products exported, and a residual term (the 'local' contribution) indicating changes in competitiveness, or performance (PERFO). The first 3 components, GLOBO, COMPO and GEO all relate to the 'expected change in trade' should trade change proportionally. The fourth and residual component, PERFO, refers to that part of the change in trade that 'shifts away' from expected proportional changes, hence the term 'Shift-Share Analysis'. This paper will analyse a change or 'shift' in shares in trade (particularly exports) of different economies. By focusing on selected time periods and using the PERFO indicator, the method will show what industries shift away from the expected change in trade, which economies have experienced such shifts in their industries, and to which regions.