FS IV 91 - 9
T he U K 's R e l a t i v e C o m p e t i t i v e n e s s D u r in g t h e 1 9 8 0 s
K i r s t y H u g h e s
F e b r u a r y 1 9 9 1
ISSN N r . 0 7 2 2 - 6 7 4 8
F o r s c h u n g s s c h w e r p u n k t M a r k tp r o z e ß u n d U n t e r n e h m e n s e n t w ic k l u n g (IIM V ) R e s e a r c h U n i t
M a rk et P r o c e s s e s and
C o r p o r a t e D e v e lo p m e n t (U M )
T h i s p a p e r a n a l y s e s t h e t r a d e p e r f o r m a n c e o f UK m a n u f a c t u r i n g i n d u s t r y b e t w e e n 1 9 8 0 a n d 1 9 8 7 f o c u s s i n g o n i t s r e v e a l e d
c o m p a r a t i v e a d v a n t a g e (RCA) a c r o s s i n d u s t r i e s a n d r e l a t i v e t o i t s m a in c o m p e t i t o r s . T h e U K 's RCA i s f o u n d t o b e p o s i t i v e l y r e l a t e d t o R&D a n d t o u n s k i l l e d l a b o u r a n d n e g a t i v e l y t o s c a l e a n d
m a n a g e r i a l s t a f f . O n ce f i x e d e f f e c t s a r e i n c l u d e d , d i f f e r e n t d e t e r m i n a n t s o f t h e ' w i t h i n ' v a r i a t i o n i n UK RCA a r e f o u n d - n o t a b l y a n e g a t i v e e f f e c t o f c a p i t a l i n t e n s i t y a n d m a n u a l
e m p l o y e e s i n t e n s i t y . I n b i l a t e r a l c o m p a r i s o n s w i t h f i v e o f t h e U K 's m a in c o m p e t i t o r s , t h e d e t e r m i n a n t s o f r e l a t i v e
c o m p e t i t i v e n e s s c r o s s - i n d u s t r i e s a r e f o u n d t o v a r y b y c o u n t r y .
ZUSAMMENFASSUNG
D i e r e l a t i v e W e t t b e w e r b s f ä h i g k e i t G r o ß b r i t a n n i e n s w ä h r e n d d e r 8 0 e r J a h r e
I n d i e s e m B e i t r a g w i r d d a s A u ß e n h a n d e l s e r g e b n i s d e r v e r a r b e i t e n d e n I n d u s t r i e G r o ß b r i t a n n i e n s f ü r d i e Z e i t v o n 1 9 8 0 u n d 1 9 8 7 u n t e r s u c h t . D ie A n a l y s e k o n z e n t r i e r t s i c h d a b e i a u f d i e o f f e n b a r t e n W e t t b e w e r b s v o r t e i l e ( a b g e k ü r z t RCA f ü r " R e v e a l e d C o m p a r a t i v e
A d v a n t a g e " ) d e r I n d u s t r i e n u n t e r e i n a n d e r u n d im V e r g l e i c h z u i h r e n H a u p t k o n k u r r e n t e n . D ie b r i t i s c h e n R C A -W erte s t e h e n i n p o s i t i v e m Z u sa m m e n h an g z u d e n V a r i a b l e n FuE u n d n i c h t q u a l i f i z i e r t e A r b e i t s k r ä f t e u n d i n n e g a t i v e r B e z i e h u n g z u d e n G r ö ß e n v o r t e i l e n u n d d e n m i t M a n a g e m e n t a u f g a b e n B e s c h ä f t i g t e n . W e rd e n f e s t e E f f e k t e b e r ü c k s i c h t i g t , d a n n l a s s e n s i c h u n t e r s c h i e d l i c h e E i n f l u ß g r ö ß e n d e r V a
r i a b i l i t ä t d e r b r i t i s c h e n R C A - V a r i a b l e n f e s t s t e l l e n , i n s b e s o n d e r e e i n n e g a t i v e r E i n f l u ß d e r K a p i t a l i n t e n s i t ä t u n d d e s U m fa n g s d e r b e s c h ä f t i g t e n A r b e i t e r . I n e i n e m b i l a t e r a l e n V e r g l e i c h m i t d e n H a u p t w e t t b e w e r b e r n G r o ß b r i t a n n i e n s z e i g t s i c h , d a ß d i e E i n f l u ß g r ö ß e n d e r r e l a t i v e n W e t t b e w e r b s f ä h i g k e i t d e r I n d u s t r i e u n t e r e i n a n d e r i n A b h ä n g i g k e i t d e r V e r g l e i c h s l ä n d e r v a r i i e r e n .
The UK's R elative C om petitiveness During th e 1980s
In tro d u ctio n
The UK's re la tiv e ly poor economic perform ance and. In p a rtic u la r, its re la tiv e ly poor m an u factu rin g tra d e perform ance h as been th e su b jec t of a larg e lite r a tu r e . However, a f te r th e re c essio n of 1980/1981, it was arg u ed t h a t UK m an u factu rin g in d u s try ex p erien ced a re v iv a l in its economic perform ance, p a rtic u la rly in its p ro d u c tiv ity grow th le a d in g to su g g estio n s of an economic 'm iracle' (see, for exam ple, M etcalf, 1988). This p ap er co n sid ers UK m an u factu rin g tra d e perform ance betw een 1980 and 1987 and com pares i t w ith t h a t of its m ain EC and global co m p etito rs b o th to a s s e s s w hat a re th e key d e te rm in a n ts of t h a t re la tiv e tra d e perform ance and to a s s e s s w h eth er th e re were any s ig n ific a n t ch an g es in th o se d e te rm in a n ts d u rin g th e 1980s.
I D eterm in an ts o f In d u s tria l Trade Perform ance
R ecent developm ents in th e in te rn a tio n a l in d u s tria l o rg a n isa tio n and in te rn a tio n a l tra d e lite r a tu r e in th e la s t decade h a v e em phasised t h a t s tra te g ic o ligopolistic b e h a v io u r may o p e ra te beyond n a tio n a l b o u n d aries w ith im p o rtan t im p licatio n s fo r In te rn a tio n a l tra d e flows and re la tiv e co m p etitiv en ess (see, fo r exam ple.
C aves e t A1 1980, B rander and Spencer 1983, A u d retsch and Yamawaki 1988).
T hus, w hile more tra d itio n a l e x p la n atio n s of tra d e flows and tra d e perform ance rem ain im p o rtan t, th e y o ffer only a p a r tia l e x p la n a tio n of o b serv ed b e h a v io u r and outcom es.
In co n sid erin g th e d e te rm in a n ts of in d u s tria l tra d e perform ance, we should, th e re fo re , aim to ta k e th e s e new th e o re tic a l In sig h ts in to acco u n t. T hus, both th e o lig o p o listic s tr u c tu r e of in d u s trie s may be an Im p o rtan t and complex fa c to r in d eterm in in g in d u s trie s ' tra d e perform ance, as may o ligopolistic b e h av io u r w ith re s p e c t to c e rta in key v a ria b le s - n o tab ly , b u t n o t only, re s e a rc h and developm ent a c tiv ity . E a rlie r s tu d ie s had p red icted a n e g a tiv e e ffe c t of In c re a sin g m arket c o n c e n tra tio n on e x p o rts (Das 1982) b u t th e more re c e n t s tu d ie s (such as Spencer and B rander (1983), and D ixit and Kyle 1986) su g g est t h a t w hile i t w ill indeed be an im p o rtan t fa c to r, its e ffe c ts will depend on th e n a tu re of th e s tra te g ic
b e h a v io u r and so on th e in te ra c tio n betw een oligopolistic s tru c tu re s and key s tra te g ic v a ria b le s. These th e o rie s h a v e received em pirical su p p o rt. T hus, A u d re tsch an d Yamawaki (1988) fin d an im p o rtan t ro le fo r th e s tra te g ic u se of R&D in e x p lain in g U S -Jap an ese b ila te ra l tra d e . T heir re se a rc h also In d ic a te s th e p o te n tia l im portance of looking a t re la tiv e c o m p etitiv en ess on a b ila te ra l b a sis r a t h e r th a n focusing on one c o u n try in iso latio n .
In th is p ap er, th e d a ta is n o t b ila te ra l and so we can n o t follow th e ir re s e a rc h desig n e x a c tly , how ever, we can look a t th e UK's perform ance re la tiv e to each of its m ain com petitors - th e US, Ja p a n , Germany, F ran ce an d Ita ly - to see if th is c a s ts new lig h t on th e role of in d u s tria l c h a ra c te ris tic s in in flu en cin g tra d e perform ance.
T hus, h e re , our approach is to combine more tra d itio n a l d e te rm in a n ts of in d u s tria l tra d e perform ance - in p a rtic u la r, hum an and p h y sical c a p ita l - w ith in d ic a to rs of p o te n tia l fo r s tra te g ic o ligopolistic b eh av io u r. Both hum an and p h y sic a l c a p ita l may be co n sid ered as endowm ents th o u g h both will change o v e r tim e, a ffe c te d by b o th p riv a te and public d ecisio n -m ak in g . It is well recognized t h a t hum an c a p ita l is b e st considered n o t a s a sin g le homogenous group b u t r a th e r a s a num ber of s e p a ra te d iffe re n tia b le ty p e s of human c a p ita l, such t h a t a c o u n try may h a v e a com parative a d v a n ta g e in some types of hum an c a p ita l b u t n o t o th e rs (see, fo r exam ple, S v eik au sk as 1983). F u rth e r, in v e stm e n t in hum an c a p ita l may m ean t h a t ad v an ced co u n trie s te n d to h av e an a d v a n ta g e in hum an and n o t n e c e s s a rily in p h y sical c a p ita l.
R esearch and D evelopm ent spending is n o t an endowment in th e tra d itio n a l se n se an d th e th e o rie s of R&D as a s tra te g ic com petitive weapon make th is p o in t q u ite c le a r. However, th e a b ility of firm s to u n d e rta k e R&D will depend in p a r t on th e sk ille d lab o u r a v a ila b le and so R&D spending will in te r a c t n o t only w ith o lig o p o listic b eh av io u r and s tru c tu re s b u t also w ith hum an c a p ita l a v a ila b ility . F in a lly , in a d d itio n to th e e ffe c ts of R&D, hum an c a p ita l and p h y sica l c a p ita l, th e ab ove d iscu ssio n in d ic a te s we m ust consider th e p o te n tia l fo r oligopolistic b e h a v io u r. Here we can co n sid er n o t only th e s tru c tu re o f m ark ets, such as th e deg ree of m ark et c o n ce n tra tio n , b u t also o th e r fa c to rs t h a t may re fle c t both s tr u c tu r e and s tra te g ic b eh av io u r, n o ta b ly scale econom ies. Scale econom ies may re fle c t key a sp e c ts of m ark et s tru c tu re and technology an d th e ir e ffe c t on tra d e may th e n depend on c o u n try size a s to w h e th er th e y are n e g a tiv e ly or p o s itiv e ly
re la te d to e x p o rts. However, th e y can also In d icate th e p o te n tia l for s tra te g ic games w ith re s p e c t to c a p a c ity which may also be p layed in a n in te rn a tio n a l c o n te x t (Spence 1979, D ixit 1980). T hus, scale, c o n c e n tra tio n a n d R&D may a ll in te r a c t to s tre n g th e n th e p o te n tia l for s tra te g ic I n te rn a tio n a l b e h av io u r by firm s in d iffe re n t c o u n trie s.
The re la tiv e im p o rtan ce of th e fa c to r endowm ent and th e s tra te g ic fa c to rs may, of co u rse, v a ry b o th acro ss c o u n try and o ver tim e. In th e case of th e UK, co n sid erab le concern h a s been ex p ressed ab o u t th e c o u n try 's re la tiv e ly poor endow m ent of sk ille d lab o u r and th e in c re asin g d is p a rity b etw een th e UK and i ts main co m p etito rs in th is reg ard (P rais 1989). We may th e n e x p e c t t h a t hum an c a p ita l would show up a s a re le v a n t v a ria b le in ex p lain in g r e la tiv e UK perform ance.
E qually, th o u g h , much concern h a s been ex p ressed ab o u t UK perform ance in in n o v a tio n (see, for exam ple, P a v itt 1980) alth o u g h th e UK rem ains th e fifth la rg e s t R&D perform er among th e OECD c o u n trie s. T hus, R&D a s a s tra te g ic v a ria b le may also be im p o rtan t in u n d e rsta n d in g UK perform ance b u t its e ffe c ts may be ex p ected to v a ry ov er tim e and acro ss d iffe re n t co m p etito r c o u n trie s.
T h ere is, of co u rse, a larg e lite r a tu r e on th e re la tio n sh ip b etw een technology and tra d e perform ance (see Hughes 1986 fo r a su rv ey ), b u t th e e a r lie r lite r a tu r e did n o t develop th e s tra te g ic im plications of such key v a ria b le s as R&D and so did n o t co n sid er i ts in te ra c tio n w ith oligopolistic s tru c tu re s n o r th e u se of R&D a s a s tra te g ic commitment. Here, th e re fo re , we specify in d u s tria l tr a d e perform ance as d eterm in ed b o th by tra d itio n a l fa c to r endowm ent v a ria b le s an d by th e In te ra c tio n o f s tra te g ic v a ria b le s and oligopolistic m ark ets.
II Specifying th e D eterm in an ts of th e UK's Revealed C om parative A dvantage The v a ria b le we choose to m easure UK tra d e perform ance is th e in d ex of re v e ale d co m p arativ e a d v a n ta g e (RCA):
(1> ” CA = (Xi u / £ X i j ) / ( f X i u / J W i .)
W here
i = i n d u s t r y , u = UK
j = c o u n t r y ( a l l t h e OECD c o u n t r i e s )
1 . .6 8 1 . .2 4
T his m easure focuses only on ex p o rts b u t i t h a s th e a d v a n ta g e o v e r o th e r ex p o rt m easu res such as th e e x p o r ts - s a le s ra tio t h a t i t ta k e s in to a cc o u n t in te rn a tio n a l m ark et s h a re s an d so c o n ta in s d ire c t in fo rm atio n ab o u t re la tiv e c o m p e titiv e n e ss.
In o rd e r to co n sid er UK c o m p e titiv e n e ss re la tiv e to its m ain in te rn a tio n a l co m p etito rs, we also c a lc u la te Indices of RCA for its fiv e la rg e s t co m p etito rs - th e US, J a p a n , Germany, F ran ce and Ita ly . We th e n c re a te th e follow ing v a ria b le
(2) RELRCA. = RCA /RCA.
l u l
w here i = f ,g j,i or s, d en o tin g re s p e c tiv e ly F rance, Germany, Ja p a n , Ita ly or th e US. T hus, th is v a ria b le c a p tu re s th e c ro s s -in d u s tr y v a ria tio n o f UK re v e a le d co m p arativ e a d v a n ta g e r e la tiv e to each of its main com petitor c o u n trie s .
We proceed th ro u g h th re e m ain sp e c ific a tio n s to consider th e d e te rm in a n ts of th e UK's tra d e perform ance in th e 1980s. F irs t, we co n sid er th e c r o s s - in d u s tr y d e te rm in a n ts of th e UK's RCA. Secondly, we a n aly se th e tim e - s e r ie s dynam ics o f th e s e e ffe c ts th ro u g h a fix ed e ffe c ts a n a ly sis . T hirdly, we e s tim a te th e UK's r e la tiv e RCA - RELRCA - w ith each of th e fiv e com petitor c o u n trie s to see how th e in flu en c e of th e In d u s tria l d e te rm in a n ts v a rie s acro ss c o m p etito r c o u n trie s an d o v e r tim e.
Given th e d iscu ssio n in s e c tio n one of th e d e term in an ts of In d u s tria l tra d e perform ance, we sp ecify th e following e stim atin g equation:
(3) LRCA = f(LRDNO, LCR5GO, LSCALE, LKL, LMEMP, LSKMNG, LSKPT, LFSK) w here th e L -p re fix in d ic a te s th e e stim a tio n will be in logs to c a p tu re th e in te r a c tiv e n a tu re of th e In d e p e n d en t v a ria b le s. The same sp e c ific a tio n is u sed to e stim a te bo th RCA and RELRCA. Id eally , a fu ll b ila te ra l model would employ d a ta from each p a ir of c o u n trie s; how ever, in th e ab sen ce o f su ch d e ta ile d in fo rm atio n th e model h e re aim s to id e n tify which UK in d u s try c h a r a c te ris tic s a re a ss o c ia te d w ith re la tiv e ly s tro n g or weak tra d e perform ance v i s - a - v i s its main com petitors. The In d e p e n d en t v a ria b le s are m easured a s follows:
RDNO = R&D e x p e n d ltu re /v a lu e -a d d e d 1980-1987 CR5 = fiv e firm c o n c e n tra tio n ra tio , 1980-1987
SCALE = a v erag e p la n t size in n e t o u tp u t term s of th e la rg e s t fifty per c e n t of th e d is trib u tio n d iv id ed by to ta l n e t o u tp u t, 1980-1987
KL = Net c a p ita l stock(198O prices)/em ploym ent 1980-1987 MEMP = o p e ra tiv e s t a f f / t o t a l em ploym ent 1980-1987
SKMNG = m an ag erial s t a f f / t o t a l em ploym ent 1981
SKPT = p ro fessio n al an d te c h n ic a l s ta f f /to ta l employment 1981
FSK = fem ale em ployees(excludlng p ro fessio n al, te c h n ic a l and m anagerial s ta f f ) /t o ta l em ploym ent 1981
Both RDNO an d SCALE a re p o te n tia l s tra te g ic v a ria b le s t h a t oligopolists may employ in an in te rn a tio n a l s tra te g ic game. At th e same tim e, in a more tra d itio n a l in te rp r e ta tio n SCALE a s well a s CR5GO in d ic a te th e e x te n t of oligopoly in a p a rtic u la r in d u s try . KL a c ts as a tra d itio n a l physical c a p ita l endowm ent v a ria b le . T here a re fo u r s k ill v a ria b le s also re fle c tin g th e tra d itio n a l hum an c a p ita l approach, b u t reco g n isin g , as p re v io u s stu d ie s h ave found (S v eik au sk as 1983), t h a t th e re are m any s k ill c a teg o ries and so as d e ta ile d inform ation as po ssib le should be used in id e n tify in g ty p e s of hum an c ap ital. Only MEMP v a rie s o v e r tim e. The o th e r th re e s k ill v a ria b le s cannot, th e re fo re , be u sed In th e fixed e ffe c ts estim atio n sin ce th e y h a v e no tim e series v a ria tio n . MEMP re p re se n ts m anual w orkers - to th e e x te n t th is v a ria b le is dom inated by skilled m anual w orkers a p o s itiv e e ffe c t on RCA may be pred icted , though n o t n e c e ssa rily on RELRCA, w hile to th e e x te n t i t is dom inated by u n sk illed lab o u r th e op p o site holds tru e . SKPT and SKMNG are bo th sk illed labour v a ria b le s and so p o sitiv e RCA e ffe c ts would be e x p ec te d while FSK re p re se n ts fem ale lab o u r th a t is n e ith e r
m an ag erial n o r p ro fessio n al and te c h n ic a l s ta f f and so may a c t as a crude proxy for u n sk ille d lab o u r, though as w ith MEMP th is In te rp re ta tio n re s ts on th e num bers of s k ille d w orkers s till c a p tu re d in th is v a ria b le .
S ta n d a rd p re d ic tio n s for th e e ffe c ts of th e in d ep en d en t v a ria b le s on th e RCA of an ad v an ced in d u s tria l economy would be th a t th e re will be p o sitiv e e ffe c ts of th e hum an c a p ita l v a ria b le s, and, p robably, a n e g ativ e e ffe c t of th e p h y sical c a p ita l v a ria b le . The signs on th e oligopoly v a ria b le s SCALE and CR5GO are u n c e rta in fo r re a so n s d iscu ssed in s e c tio n I while a p o sitiv e e ffe c t of th e u se of R&D as a s tr a te g ic v a ria b le would be ex p ected . These p red ictio n s should s till ap p ly to th e UK sin ce d e sp ite its r e la tiv e decline it rem ains one of th e w orld's ad v an ced econom ies.
However, th e s e p re d ic tio n s will n o t rem ain c o n sta n t e ith e r fo r th e tim e -s e rie s e ffe c ts o f th e s e v a ria b le s or fo r RELRCA, p recisely because of th e UK's re la tiv e decline. UK w eak n ess may become a p p a re n t both over tim e and re la tiv e to com petitors. However, v a ria tio n acro ss com petitors will be ex p ected depending on th e ir re la tiv e s tre n g th s and w eak n esses. Thus, if th e UK is re la tiv e ly weak in hum an c a p ita l, n e g a tiv e signs may be p red icted on th e high sk ill v a ria b le s an d p o sitiv e o nes on th e u n sk illed v a ria b le s as UK in d u s try re la tiv e d e -s k ills . E qually a p o s itiv e e ffe c t of c a p ita l in te n s ity may be p red icted if th is is a n o th e r c h a r a c te ris tic of moving re la tiv e ly 'd o w n -m a rk et'. F in ally , a n e g a tiv e e ffe c t of R&D would be p re d ic te d according to argum ents ab o u t poor UK in n o v a tiv e perform ance. However, th e c o n tin u in g hig h lev el in aggregate of UK R&D su g g ests th is m ight n o t be c o rre c t. Previous UK stu d ie s h av e in d ic a te d a p o sitiv e e ffe c t of in n o v a tio n (G reenhalgh 1990) or R&D (Hughes 1986) on tra d e perform ance, b u t th is does n o t provide inform ation on perform ance in in n o v a tio n -in te n s iv e in d u s trie s r e la tiv e to com petitors. The signs on th e two oligopolistic v a ria b le s a re am biguous.
Two s tu d ie s h a v e a tte m p te d to see w h e th er th e re is any tre n d evid en ce for th e UK fo r th e 1980s to in d ic a te a p o sitiv e 'T h a tc h e r' e ffe c t on tra d e perform ance.
Funke (1990) fin d s no evid en ce t h a t th e tre n d decline in UK n o n -p ric e c o m p e titiv e n e ss h a s been a rre s te d or re v e rse d , while Landesm ann and Snell (1989) fin d e v id e n ce of a s tr u c tu r a l s h if t in th e income e la s tic ity of demand for UK e x p o rts. The approach h ere is r a th e r d ifferen t, focussing more d ire c tly on In d u s try c h a r a c te ris tic s b u t should also be able to throw some lig h t on th is Issu e.
III R esu lts
The e q u a tio n s a re e stim a te d by o rd in ary le a s t sq u a re s u sin g d a ta on ex p o rts and im ports for 1 9 8 0 -1 9 8 7 for th e six c o u n trie s focused on h e re , th a t is th e US, J a p a n , Germany, F ran ce, th e UK and Ita ly . The tra d e d a ta is 4 -d ig it d a ta on th e In te rn a tio n a l S tan d ard In d u s tria l C la ssific a tio n fo r m anufacturing in d u s trie s . D ata on in d u s try c h a ra c te ris tic s is ta k e n from 4 - d ig i t UK d a ta on th e UK S tan d ard In d u s tria l C lassificatio n , which is th e n a g g reg ated to th e 4 -d lg it ISIC le v e l. T his r e s u lts in a p an el d a ta b ase of 68 In d u s trie s fo r eig h t y e ars.
(F u rth e r d e ta ils on d a ta c o n stru c tio n are given in th e appendix).
T able One p re s e n ts th e re s u lts for e stim atin g th e model s e t o u t above, for UK RCA pooled from 1980 to 1987. E quation (1) in ta b le one p re s e n ts th e pooled r e s u lts w ith o u t fix ed e ffe c ts, w hile eq u atio n (2) p re s e n ts th e re s u lts including fix ed in d u s try e ffe c ts a n d time dummies. E q u atio n (1) e x p la in s tw e n ty p er cen t o f th e v a ria tio n in RCA a n d an F - t e s t su p p o rts th e r e s tric tio n of pooling acro ss y e a rs. The two v a ria b le s t h a t h a v e a p o sitiv e and s ig n ific a n t e ffe c t on UK RCA a re RDNO and FSK. T hus, R&D does h av e a c le a r p o sitiv e e ffe c t on UK tra d e perform ance, d e sp ite th e common view th a t th e UK is w eak in its in n o v atio n perform ance. However, th e one hum an c a p ita l v a ria b le t h a t is p o sitiv e is th e v a ria b le , FSK, re p re s e n tin g u n sk illed labour. This does th e n su p p o rt th e view t h a t th e UK is re la tiv e ly weak in its human c a p ita l endow m ent w ith p o te n tia lly se rio u s e ffe c ts on its tra d e perform ance.
The rem aining th re e hum an c a p ita l v a ria b le s a re a ll n e g a tiv e . SKPT is n e g ativ e and in s ig n ific a n t w hile SKMNG and MEMP a re both sig n ific a n t in d ic a tin g re la tiv e ly worse perform ance in th o s e in d u s trie s u tilisin g a high p ro p o rtio n of m anagem ent s t a f f and in th o se in d u s trie s w ith a high lev el of m anual em ployees.
E q u atio n (2), ta b le one, Includes 67 in d u s try dummies and 7 tim e dummies. The tim e dummies were n o t s ig n ific a n t and a re n o t rep o rte d . The in clu sio n of th e in d u s try fixed e ffe c ts in c re a se s th e e x p la n ato ry power g re a tly , in d ic a tin g th a t c o n s ta n t In d u s try sp ecific e ffe c ts a re of predom inant im portance in determ ining RCA. The o th e r in d e p e n d e n t v a ria b le s c a p tu re th e tim e - or w ith in - v a ria tio n o f each c ro s s -s e c tio n u n it. None of th e s tra te g ic v a ria b le s h a v e any im pact in th e tim e dim ension. R&D is p o sitiv e b u t in s ig n ific a n t as is c o n c e n tra tio n while sc a le is n e g a tiv e and in sig n ific a n t. However, th e two endow m ent v a ria b le s th a t
v a ry over tim e, KL and MEMP, a re bo th n e g a tiv e and sig n ific a n t. Thus, RCA is becoming r e la tiv e ly weak in th o se in d u s trie s t h a t are c a p ita l- in te n s iv e and w ith a high le v e l o f m anual em ployees. The m anual employees re s u lt rein fo rces th e r e s u lt of th e b etw een e stim a te s. The c a p i ta l - in te n s i ty re s u lt c o n tra s ts w ith th e betw een re s u lts . T hus, alth o u g h c a p ita l in te n s ity h as a p o sitiv e b u t in sig n ifc a n t e ffe c t on RCA a c ro ss in d u s trie s , once th e tim e dim ension is considered, i t h as a c le a r n e g a tiv e e ffe c t.
O verall, th e s e r e s u lts su g g est no tre n d s , th e n , w ith re s p e c t to th e s tra te g ic v a ria b le s. With re s p e c t to R&D th is may be of p a rtic u la r concern to th e e x te n t t h a t th e UK is lagging in tech n o lo g y and needs to c atch up. These re s u lts su g g est w h a te v e r th e re la tiv e tech n o lo g ical a b ility of UK in d u s trie s , th e re is no te n d e n cy d u rin g th e 1980s fo r th e p o sitio n of R & D -intensive in d u s trie s e ith e r to Improve o r to d e te rio ra te .
T able two p re s e n ts e stim a te s o f RELRCA1, where i=F,G,I,J or S den o tin g F ran ce, Germany, Ita ly , J a p a n and th e US re s p e c tiv e ly . These are pooled e stim a te s b u t w ith o u t fix ed e ffe c ts. The e x p la n a to ry power v a rie s acro ss c o u n trie s from 27 p e r c e n t in th e case o f RELRCAJ to 10 p er c e n t for th e US com parison. The only c o n s is te n t v a ria b le , in sign and sig n ifican ce acro ss th e fiv e e q u atio n s is FSK w hich is p o sitiv e . T hus, re la tiv e to a ll fiv e of its com petitors h ere, th e UK's co m p arativ e a d v a n ta g e is re la tiv e ly stro n g in low sk ill in d u s trie s . The r e s u lts fo r th e o th e r s k ill v a ria b le s a re more mixed. SKPT is sig n ific a n tly n e g a tiv e r e la tiv e to Germany and s ig n ific a n tly p o sitiv e re la tiv e to Ita ly , b u t o th erw ise in s ig n ific a n t. T his would su p p o rt th o se s tu d ie s th a t h av e s tre s s e d th e c o n tra s t betw een UK and German tra in in g le v e ls (Steedm an and Wagner 1987), a t th e sam e tim e a s in d ic a tin g t h a t such com parisons are n o t eq u ally re le v a n t w ith re s p e c t to a ll th e UK's com petitors. SKMNG is c o n sis te n tly n e g a tiv e acro ss a ll fiv e e q u a tio n s b u t only s ig n ific a n t , re la tiv e to Ita ly and Jap a n . O verall, th is re in fo rc e s th e m essage from ta b le one t h a t th e UK perform s re la tiv e ly worse in In d u s trie s w ith a r e la tiv e ly high pro p o rtio n of m anagerial s ta ff. MEMP is n e g a tiv e fo r a ll e q u a tio n s e x ce p t re la tiv e to th e US where i t is p o sitiv e and sig n ific a n t.
T his ag ain s u g g e s ts t h a t w eak n esses and s tre n g th s In hum an c a p ita l v a ry depending on th e com parison being made.
The p h y sica l c a p ita l v a ria b le also v a rie s acro ss e q u a tio n s - p o sitiv e and s ig n ific a n t re la tiv e to F rance, n e g a tiv e and sig n ific a n t r e la tiv e to Ita ly and J a p a n and o th erw ise in sig n ific a n t. T hus, as w ith human c a p ita l, th e re la tiv e a d v a n ta g e or o th erw ise o f UK in d u s trie s in c a p ita l- in te n s iv e in d u s trie s v a rie s dep en d in g on th e c o u n try com parison.
T u rn in g to th e s tra te g ic v a ria b le s, R&D is p o sitiv e in a ll e q u a tio n s except r e la tiv e to Ja p a n w here it is n e g a tiv e and sig n ific a n t. However, i t is only s ig n ific a n tly p o sitiv e re la tiv e to F ran ce and Germany. Thus, a lth o u g h th e UK may be re la tiv e ly weak in its R&D sp en d in g - spending less in to ta l th a n all th e c o u n trie s h ere e x cep t Ita ly - In term s of its re la tiv e perform ance across in d u s trie s , i t is perform ing re la tiv e ly well in its R & D -intensive in d u s trie s com pared to its two m ain EC co m p etito rs, and it is only compared w ith th e case of J a p a n t h a t th e re is a c le a r d is a d v a n ta g e .
SCALE is n e g a tiv e ex cep t w ith re s p e c t to Germany, b u t i t is only s ig n ific a n t re la tiv e to F ran ce and Jap a n , su g g e stin g some re la tiv e d is a d v a n ta g e in in d u s trie s w ith h ig h er sca le econom ies b u t n e v e r th e le s s a d isa d v a n ta g e t h a t v a rie s across c o u n trie s. CR5GO is p o sitiv e ex ce p t r e la tiv e to F rance, b u t s ig n ific a n t only w ith re s p e c t to Ita ly and Jap a n . T hus, th e re is some in d ic a tio n th a t UK in d u s trie s may perform re la tiv e ly b e tte r in more o ligopolistic in d u s trie s b u t th is is also n o t c o n s is te n t acro ss c o u n trie s.
F in a lly , ta b le th re e e stim a te s RELRCAi in clu d in g 67 in d u s try dummies and 7 time dummies in ord er to in v e s tig a te th e dynam ic in flu en ces on th e UK's re la tiv e perform ance. The e x p la n a to ry power is high, again d em o n stratin g th e Im portance of in d u s try -s p e c ific fixed e ffe c ts. The tim e dummies are in s ig n ific a n t ex cep t in th e case of Ja p a n and th e US w here th e y a re p o sitiv e and s ig n ific a n t, In d icatin g some u n ex p lain ed tre n d Im provem ent o v e r tim e re la tiv e to th e s e two co u n tries.
U nlike ta b le two, th e r e s u lts in ta b le th re e are q u ite close to th e fixed e ffe c ts e stim a te s of RCA in ta b le one, su g g e stin g t h a t while th e betw een d e te rm in a n ts o f RELRCAi v a ry s u b s ta n tia lly a cro ss c o u n trie s th e dynam ic tre n d s a re all p o in tin g in th e sam e d ire c tio n . T h u s, RDNO v a rie s in sign b u t is alw ays in s ig n ific a n t and sim ilarly SCALE. CR5GO Is also in sig n ific a n t ex cep t re la tiv e to Ja p a n w here i t is p o sitiv e and s ig n ific a n t. This rein fo rces th e betw een re s u lts from ta b le two, t h a t th e UK perform s r e la tiv e ly well r e la tiv e to J a p a n in more o lig o p o listic In d u s trie s . C a p i ta l - in te n s i ty is n e g ativ e in a ll c ases and sig n ific a n t
fo r a ll c o u n trie s e x c e p t Ita ly . Manual employment, MEMP, Is n e g a tiv e in a ll cases e x c e p t J a p a n a n d s ig n ific a n t re la tiv e to th e th re e EC c o u n trie s. O verall, th e re fo re , th e ch an g es in in d u s tr ie s ' re la tiv e perform ance o ver th e 1980s is co n n ected to two fa c to r endow m ent v a ria b le s - human and p h y sical - and n o t to s tra te g ic v a ria b le s . F u rth e r, a s was th e case for RCA, th e dynam ic changes a re n o t th e sam e as th e b e tw ee n e ffe c ts ex ce p t in th e case o f m anual em ployees, so we c a n n o t in an y s e n s e ta lk a b o u t equilibrium p a tte rn s of tra d e perform ance. R ath er in d u s trie s ' p erfo rm an ce is changing b u t in a way d iffe re n t from w h at m ight be p re d ic te d from c o n sid e ra tio n of th e s ta tic c ro s s -in d u s tr y p ic tu re .
In d u s trie s ' p erfo rm an ce is also n o t changing in ways th a t m ight be p re d ic te d from m any a n a ly s e s o f th e cau ses of UK poor perform ance. N otably, i t is n o t d e te rio ra tin g in R & D -in ten siv e in d u s trie s . F u rth e r, moves 'd o w n -m a rk e t' by UK in d u s try m ight also be e x p ec te d to re s u lt in more n o t le ss im portance of p h y sic a l c a p ita l, b u t th e o p p o site h a s occurred. However, w ith re sp e c t to hum an c a p ita l v a ria b le s , we a re u n fo rtu n a te ly n o t in a p o sitio n to a sse ss ch an g es o v e r tim e w ith re s p e c t to p ro fe ssio n a l an d te c h n ic a l s ta f f, m anagerial s t a f f or u n s k ille d lab o u r. The b etw een r e s u lts bo th for RCA and RELRCA do su p p o rt th e arg u m en ts bo th t h a t th e UK is re la tiv e ly w eak in term s of its m an ag erial s t a f f an d t h a t i t is p ro g re s siv e ly 'd e-sk illin g * . However, w ith o u t fu r th e r tim e -s e rie s d a ta on d iffe re n t s k ills c la s s e s , i t is n o t po ssib le from th is kind of a n a ly sis to a s s e s s th e tre n d s o v e r tim e w ith re s p e c t to th e se v a ria b le s. The re s u lts fo r p ro fe ssio n a l and te c h n ic a l s t a f f in th e RELRCA eq u atio n s also in d ic a te t h a t we sh o u ld n o t g e n e ra lise too s w iftly from any one b ila te ra l com parison. C ertain ly , th o u g h , th e re s u lts h e re do n o t e ith e r su p p o rt or in d ic a te any tre n d im provem ents in tra d e perform ance t h a t may h a v e re s u lte d from th e s o -c a lle d 'm iracle' of th e T h a tc h e r y e a rs.
C onclusion
T his p a p e r h a s a s s e s s e d th e tra d e perform ance of UK m a n u fa ctu rin g in d u s try b etw een 1980 and 1987 focusing on i ts re v e ale d com parative a d v a n ta g e and its co m p arativ e a d v a n ta g e r e la tiv e to some of its main com petitors. The re s u lts su g g e st t h a t th e c r o s s - in d u s tr y p a tte rn of re v e ale d com parative a d v a n ta g e is p o s itiv e ly re la te d to R&D and to u n sk ille d lab o u r and n e g a tiv e ly to s c a le and m a n ag erial s ta f f. However, once In d iv id u al b ila te ra l com parisons a re made, th e
r e s u lts v a ry acro ss th e d iffe re n t com parisons and th e only ro b u s t finding is t h a t of a p o sitiv e re la tio n s h ip b etw een u n sk illed labour and re v e a le d com parative a d v a n ta g e . Once fixed e ffe c ts a re in clu d ed , th e p ictu re a lte rs again, w ith no In d icatio n of any v a ria b le h a v in g a p o sitiv e effect on tre n d s in perform ance b u t w ith p h y sical c a p i t a l - i n t e n s i t y and m anual e m p lo y m e n t-in ten sity having n e g a tiv e effe c ts on tre n d s in perform ance. The re s u lts h ere do n o t support, th e re fo re , e ith e r argum ents t h a t UK tra d e perform ance is d e te rio ra tin g more in R & D -intensive in d u s trie s nor, on th e o th e r hand, th a t perform ance h as Improved w ith re sp e c t to any key v a ria b le s o v e r th e T h atch er y e ars. The r e s u lts do ra ise some serio u s q u e stio n s w ith re s p e c t to th e role of sk illed and u n sk illed labour b u t th e s e re q u ire f u r th e r tim e - s e r ie s d a ta for firm conclusions to be drawn.
APPENDIX
The e x p o rt an d Im port d a ta was o b ta in e d from th e OECD com puter d a ta b an k . E xports and im ports w ere in th o u sa n d s of US do llars a t c u rre n t prices. The o rig in al d a ta was fo r 80 4 -d ig it ISICs. However, In ord er to be com patible w ith th e In d u s try d a ta 5 ISICs were dropped an d 4 ISICs were combined in to groups c o n ta in in g e ith e r two or th re e ISICs.
The UK d a ta was o b ta in e d from a com prehensive d a ta b a se on UK m an u factu rin g in d u s try c o n stru c te d fo r 202 4 -d ig it m an u factu rin g in d u s trie s covering all of m a n u fa ctu rin g in d u s try - F u rth e r d e ta ils of its co n stru ctio n a re giv en in Andrews, M. e t a l (1990) a v a ila b le from th e c u rre n t a u th o r on re q u e st.
To tr a n s la te th e d a ta in to th e ISIC a concordance ta b le was o b ta in e d from th e UK D epartm ent o f T rad e and In d u stry . The 202 in d u s trie s were ag g reg ated to 73 ISICs fo r w hich e x a c t concordances e x isted . Missing v a ria b le s in in d iv id u a l d a ta s e rie s re s u lte d in th e fin a l sam ple size of 68 in d u s trie s .
SKMNG, SKPT and FSK were derived from th e UK Census of P op u latio n 1981.
R&D d a ta was o b ta in e d from B usiness Monitor MO 14 and from B ritish B usiness for th e y e a rs 1981, 1983, 1985, 1986 and 1987. For 1980, RDNO from 1981 was u sed an d for 1982 an d 1984 e stim a te s o f RDNO were o b tain ed by in te rp o la tio n from th e d a ta fo r th e preceding and th e su b se q u e n t y ear.
C ap ital sto ck and c a p ita l consum ption d a ta a t tw o -d ig it lev el was o b tain ed from th e C en tral S ta tis tic a l Office and d isag g reg ated to 4 - d ig it SIC le v e l usin g av erag e in v e stm e n t 1980 to 1987 to o b tain in iti a l e stim a te s for 1987. Net c a p ita l sto ck fo r each p re v io u s y e a r was th e n o b ta in e d using th e following re la tio n sh ip : K ( t - l ) = K(t) - I(t) + capcon(t)
w here K is c a p ita l sto ck , I Is In v estm en t and capcon is c a p ita l consum ption. All v a ria b le s a re in c o n s ta n t 1980 prices.
The rem aining d a ta w as ob tain ed from UK C ensuses o f Production 1980 to 1987.
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Economic J o u rn a l v o l.93 pp 5 4 2 -5 5 4
Uk R e v e a l e d C o m p a r a tiv e A d v a n ta g e 1 9 8 0 - 1 9 8 7 - p a n e l e s t i m a t e s -
I n d e p e n d e n t V a r i a b l e s
D e p e n d e n t V a r i a b l e ( 1 )
LRCA
( 2 ) * LRCA
LRDNO 0 . 1 6 0 . 0 4
( 4 . 4 6 ) ( 0 . 7 8 )
LCR5GO - 0 . 0 6 0 . 0 1
( - 0 . 9 4 ) ( 0 . 1 8 )
LSCALE - 0 . 0 7 - 0 . 0 0 4
( - 4 . 2 4 ) ( - 0 . 3 5 )
LKL 0 . 0 4 - 0 . 2 3
( 0 . 9 9 ) ( - 3 . 6 5 )
LMEMP - 0 . 9 6 - 1 . 1 4
( - 4 . 1 7 ) ( - 2 . 3 9 )
LSKMNG - 0 . 3 1
( - 2 . 8 8 )
—
LSKPT - 0 . 0 2
( - 0 . 4 0 )
—
LFSK 0 . 3 1
( 4 . 8 2 )
—
CONSTANT - 0 . 7 4 2 2 . 9 6
( - 1 - 6 7 ) ( 1 1 . 1 2 )
n 54 4 5 4 4
R2 0 . 2 0 0 . 9 6
F 1 9 . 0 1 5 9 . 1
* E q u a t i o n ( 2 ) i n c l u d e s 67 i n d u s t r y d u m m ie s a n d 7 t i m e d u m m ie s
F i g u r e s i n b r a c k e t s a r e t - s t a t i s t i c s .
S t a n d a r d e r r o r s a r e h e t e r o - s k e d a s t i c c o n s i s t e n t .
UK R e v e a l e d C o m p a r a t i v e A d v a n t a g e
R e l a t i v e t o m a in C o m p e t i t o r s 1 9 8 0 - 8 7 , p o o l e d
I n d e p e n d e n t V a r i a b l e s
D e p e n d e n t V a r i a b l e s
( 4 ) LRELRCAJ
( 5 ) LRELRCAS ( 1 )
LRELRCAF
( 2 ) LRELRCAG
( 3 ) LRELRCAI
LRDNO 0 . 2 2 0 . 0 9 0 . 0 1 - 0 . 6 0 0 . 0 5
( 4 . 1 0 ) ( 2 . 0 8 ) ( 0 . 1 7 ) ( - 8 . 5 0 ) ( 0 . 8 7 )
LCR5G0 - 0 . 1 9 0 . 0 6 0 . 4 3 0 . 4 8 0 . 0 9
( - 1 . 6 8 ) ( 0 . 8 9 ) ( 2 . 7 4 ) ( 2 . 8 3 ) ( 0 . 8 7 )
LSCALE - 0 . 5 5 0 . 0 0 2 - 0 . 0 5 - 0 . 1 1 - 0 . 0 2
( - 2 . 5 2 ) ( 0 . 1 4 ) ( - 1 . 8 0 ) ( - 2 . 7 0 ) ( - 1 . 0 5 )
LKL - 0 . 1 3 0 . 0 3 0 . 3 4 0 . 5 6 0 . 0 6
( - 2 . 7 9 ) ( 0 . 6 7 ) ( 4 . 4 4 ) ( 5 . 8 3 ) ( 1 . 0 7 )
LMEMP - 0 . 6 5 - 1 . 2 8 - 1 . 9 9 - 4 . 8 3 0 . 7 4
( - 1 . 8 0 ) ( - 5 . 2 3 ) ( - 3 . 8 7 ) ( - 7 . 6 2 ) ( 2 . 3 4 )
LSKMNG - 0 . 1 9 - 0 . 2 8 - 0 . 5 2 - 1 . 2 9 - 0 . 1 9
( - 1 . 3 0 ) ( - 1 . 8 9 ) ( - 2 . 3 8 ) ( - 5 . 0 9 ) ( - 1 . 3 0 )
LSKPT - 0 . 0 7 - 0 . 1 5 0 . 2 7 0 . 1 3 - 0 . 0 3
( - 0 . 9 5 ) ( - 2 . 4 4 ) ( 2 . 2 5 ) ( 1 . 1 3 ) ( - 0 . 3 3 )
LFSK 0 . 2 6 0 . 4 5 0 . 6 2 1 . 1 8 0 . 4 9
( 3 . 6 1 ) ( 5 . 5 4 ) ( 5 . 4 2 ) ( 8 . 5 8 ) ( 5 . 7 2 )
CONSTANT 0 . 1 3 - 0 . 6 1 - 0 . 8 1 - 6 . 1 0 0 . 6 5
( 0 . 2 1 ) ( - 1 . 1 9 ) ( - 0 . 9 1 ) ( - 5 . 8 1 ) ( 1 . 0 8 )
n 544 544 544 5 4 4 544
R2 0 . 1 7 0 . 1 2 0 . 2 2 0 . 2 7 0 . 1 0
F 1 4 . 8 9 . 4 1 8 . 5 5 1 . 1 1 4 . 0
F i g u r e s i n b r a c k e t s a r e t - s t a t i s t i c s .
S t a n d a r d e r r o r s a r e h e t e r o - s k e d a s t i c c o n s i s t e n t .
UK R e v e a l e d C o m p a r a tiv e A d v a n ta g e R e l a t i v e t o M ain C o m p e t i t o r s - p a n e l e s t i m a t e s , 1 9 8 0 - 8 7 -
I n d e p e n d e n t V a r i a b l e s
D e p e n d e n t V a r i a b l e s
( 4 ) LRELRCAJ
( 5 ) LRELRCAS ( 1 )
LRELRCAF
( 2 ) LRELRCAG
( 3 ) LRELRCAI
LRDNO 0 . 0 7 - 0 . 0 1 - 0 . 0 5 0 . 0 3 0 . 1 0
( 1 . 1 4 ) ( - 0 . 1 0 ) ( - 0 . 7 9 ) ( 0 . 4 1 ) ( 1 . 1 4 )
LCR5G0 - 0 . 1 0 - 0 . 0 2 0 . 1 1 0 . 3 1 - 0 . 0 1
( - 0 . 2 2 ) ( - 0 . 2 2 ) ( 0 . 9 8 ) ( 2 . 1 7 ) ( - 0 . 1 0 )
LSCALE 0 . 0 1 - 0 . 0 1 - 0 . 0 2 0 . 0 1 - 0 . 0 1
( 1 . 0 2 ) ( - 0 . 4 0 ) ( - 1 . 5 1 ) ( 0 . 1 7 ) ( - 0 . 2 1 )
LKL - 0 . 2 3 - 0 . 3 2 - 0 . 0 9 - 0 . 2 5 - 0 . 2 9
( - 3 . 1 4 ) ( - 4 . 9 5 ) ( - 1 . 0 9 ) ( - 2 . 0 3 ) ( - 3 . 1 5 )
LMEMP - 1 . 5 9 - 1 . 5 7 - 1 . 5 9 0 . 4 2 - 0 . 9 5
( - 3 . 0 0 ) ( - 3 . 6 4 ) ( - 6 . 1 8 ) ( 0 . 5 5 ) ( - 1 . 8 3 )
CONSTANT 2 7 . 1 6 3 3 . 2 5 0 . 4 8 6 8 . 6 7 3 2 .6 8
( 1 1 . 2 4 ) ( 1 4 . 4 1 ) ( 0 . 1 5 ) ( 2 1 . 5 8 ) ( 1 5 . 1 4 )
n 5 4 4 544 544 544 544
R2 0 . 9 6 0 . 9 7 0 . 9 8 0 . 9 7 0 . 9 4
F 1 8 4 . 0 2 1 6 . 9 3 0 6 . 4 3 1 8 .4 1 1 2 . 9
A l l e q u a t i o n s i n c l u d e 67 i n d u s t r y a n d 7 t i m e d u m m ie s . F i g u r e s i n b r a c k e t s a r e t - s t a t i s t i c s
S t a n d a r d e r r o r s a r e h e t e r o - s k e d a s t i c c o n s i s t e n t .
T he U K 's R e l a t i v e C o m p e t i t i v e n e s s D u r in g t h e 1 9 8 0 ' s ,
D i s c u s s i o n P a p e r FS IV 91 - 9 , W i s s e n s c h a f t s z e n t r u m B e r l i n f ü r S o z i a l f o r s c h u n g 1 9 9 1 .