Brunhart, Andreas; Geiger, Martin; Hasler, Elias (2019): Liechtensteins

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For Liechtenstein as a very small and open economy, exports play a crucial role. Small states generally feature a lower economic diversi- fication level (low domestic market size, lack of economies of scale/scope, scarce personal or natural resources, niche strategy by state/

economy), which usually leads to higher export concentration. This LI Facts discusses Liechtenstein’s export concentration as an important aspect of economic diversification.

To measure export con-

centration, we apply the Herfindahl-Hirsch- man Index (HHI). The HHI captures sectoral concentration at pro- duct group level. An HHI value of 1 indicates complete concentrati- on, meaning that only one product group is being exported. By con- trast, an HHI close to 0 reflects a very broadly diversified export sec-

tor (with many product groups and comparable market shares). The main graph below shows the HHI (69 product groups) both for Liechten- stein and Switzerland.

Despite Liechtenstein’s small size, the degree of export diversification is surprisingly high. Also, Liechtenstein’s goods exports concentration has decreased over the last 25 years and fell under the Swiss level after the financial crisis 2008 (and has remained below Switzerland since).

The increasing dominance of the pharmaceutical sector in Switzerland has continuously reduced export diversification: If the pharma sector is excluded from the product group sample, the Swiss export diversification has remained stable and lies below the Liechtenstein benchmark.

Recommended form of citation: Brunhart, Andreas; Geiger, Martin; Hasler, Elias (2019): Concentration of Liechtenstein’s Exports in International Comparison. LI Facts 1/2019.

Liechtenstein Institute, Bendern. – Data sources: Office of Statistics (Liechtenstein), Federal Customs Administration (Switzerland), UN Comtrade, Eurostat, OECD, Depart- ment for Statistics (Andorra). Detailed explanation of the Herfindahl-Hirschman Index: „Die Entwicklung des liechtensteinischen Aussenhandels seit der Finanzkrise“ (Brun- hart and Geiger, LI Focus 1/2019).

LIECHTENSTEIN’S EXPORT CONCENTRATION

 The goods export concentration has diminished over the entire sample period, the HHI has fallen from 0.12 to 0.09 (the reduction from 1998 to 1999 can be attributed, to some extent, to a revision of the product groups’ classification).

 The sharp concentration decrease along with the financial crisis 2009 was driven by the contrac- tion of exports in the sectors “metals” and “machines, appliances, electronics”, which are of high importance for Liechtenstein. Investment goods are typically more severely affected during recessions.

 The relative share of machinery exports in Liech- tenstein has declined during the last ten years, while vehicle parts and chemical/pharmaceutical products have gained relative importance. The de- cline in the relative share of machines combined with an increase of the chemical/pharmaceutical sector’s importance can also be observed for Swit- zerland, but the development is much more pro- nounced than in Liechtenstein.

 Even though a divergence between Switzerland and Liechtenstein is evident, both countries share a common pattern of increasing diversification re- garding exports with respect to export destination countries.

Concentration of Liechtenstein’s Exports in International Comparison

Andreas Brunhart, Martin Geiger, Elias Hasler © Liechtenstein Institute, December 2019

LI FACTS

1/2019

+0.3%

+0.1%

-0.5%

+0.2%

+0.9%

+1.6%

-2.4%

+0.7%

-5.9%

+2.9%

+1.5%

+0.5%

+1.0%

+0.2%

-1.1%

-1.3%

-0.7%

+8.3%

-0.1%

-1.6%

-7.8%

-0.5%

+4.1%

-0.7%

-10% -8% -6% -4% -2% 0% 2% 4% 6% 8% 10%

01 Forestry and Agricultural Products, Fishery 02 Energy Source 03 Textiles, Clothing, Shoes 04 Paper, Articles of Paper, Printing Industry Products 05 Leather, Rubber, Plastics 06 Chemical and Pharmaceutical Industry 07 Stones and earth 08 Metals 09 Machines, Appliances, Electronics 10 Vehicles 11 Precision Instruments, Clocks and Watches, Jewellery 12 Various Goods

Goods Exports Liechtenstein and Switzerland

Product Group Shares, Difference in Percentage Points (Annual Averages 2009–2018 vs. 1999–2008)

Liechtenstein Switzerland

LIE CH AUT GER UK USA ISL AND LUX OECD Sectoral Concentration of Goods Exports (Herfindahl-Hirschman Index) 1999 0.091 0.061 0.045 0.056 0.067 0.050 0.396 0.125 0.082 0.081 2008 0.099 0.085 0.044 0.053 0.075 0.040 0.290 0.108 0.105 0.082 2018 0.091 0.135 0.044 0.057 0.068 0.052 0.329 0.177 0.063 0.085

Export Quota (Goods Exports in Relation to GDP)

2017 53.1% 44.1% 40.2% 39.5% 16.5% 8.0% 19.9% 4.0% 24.6% 17.7%

Compared with other small states (e.g. Iceland, Andorra), Liechtenstein is characterized by a stable and very diversified export structure. According to the HHI, the goods export concentration in Liechtenstein has declined since 1999 and is currently below Switzerland, but (not surprisingly) above larger countries such as Germany, Austria, USA or United Kingdom.

Liechtenstein’s export quota is the highest among the countries considered here (exports within the mutual custom area Switzerland/Liechtenstein are not included).

7.0%

10.6%

5.9%

23.5%

24.1%

12.8%

11.6%

Goods Exports Liechtenstein

(Product Group Shares, Average 1999–2008) 01 Forestry and Agricultural Products, Fishery 02 Energy Source

03 Textiles, Clothing, Shoes

04 Paper, Articles of Paper, Printing Industry Products 05 Leather, Rubber, Plastics

06 Chemical and Pharmaceutical Industry 07 Stones and earth

08 Metals

09 Machines, Appliances, Electronics 10 Vehicles

11 Precision Instruments, Clocks and Watches, Jewellery 12 Various Goods

4.4%

41.8%

5.8%

16.3%

2.4%

21.4%

Goods Exports Switzerland

(Product Group Shares, Average1999–2008) 01 Forestry and Agricultural Products, Fishery 02 Energy Source

08 Metals

7.0%

10.6%

5.9%

23.5%

24.1%

12.8%

11.6%

(Product Group Shares, Average 1999–2008) 01 Forestry and Agricultural Products, Fishery 02 Energy Source

08 Metals

0 0.02 0.04 0.06 0.08 0.1 0.12 0.14 0.16

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

HHI HHI Export Concentration, 69 Product Categories (Herfindahl-Hirschman Index)

Switzerland

Switzerland (without Pharmaceutical/Medicine Products) Liechtenstein

(Product Group Shares, Average 2009‒2018) Goods Exports Switzerland

(Product Group Shares, Average 2009‒2018)