December 10, 2007
Exporting From Indiana
The debate on globalization most often focuses on imported goods. This is natural, for it is the sole source of pain associated with increasing international trade. The pain accrues to workers and investors in businesses that cannot compete internationally. Of course the net impact is positive, in part because trade reallocates workers and capital to more productive activities. These more productive activities pay better and so are ultimately better for the economy – both here and abroad. One often overlooked element of the trade debate is the huge role exports play in the Hoosier economy.
About 7.1 percent of Indiana jobs are directly dependent on exporting goods overseas. Almost one in five manufacturing workers make goods directly for foreign consumers. Also, a significant, but largely unmeasured number of service providers engage directly with foreigners.
Hoosier businesses exported over $22 billion worth of goods last year, a more than 50 percent increase in just four years. This represented just a bit more than ten percent of the value of all goods and services produced in the State last year. The value of exported goods in Indiana is larger than any single major sector of our economy except manufacturing as a whole.
Indiana businesses traded with virtually every member of the United Nations in 2006. Not surprisingly, Canada is our largest trading partner receiving 44 percent of our total exports. These data tell an important story about exported commerce in Indiana, but there’s a lot more to the story.
Indiana’s exporting firms are heavily concentrated in just a few manufacturing sectors. One third of our exports are in transportation equipment. Smaller but significant export sectors include chemicals, machinery and surprisingly computers.
Not only are the types of exports concentrated, but the locations are also highly concentrated, which means that despite the widespread reach of exports, we send much of the same type of exports to a smaller number of countries than most other states.
The high level of export concentration by industry and location means that Indiana’s exporting firms are very sensitive to the economic conditions of their trading partners. So, in addition to worrying about Indiana’s economy many of our local business men and women must pay attention to the international scene. Thus, one major impact of globalization is the need to pay close attention to economic activity in such disparate places as Canada and Portugal and India.
Exporting is difficult business. Firms that engage in commerce must wind their way through costly transportation markets and perhaps more painful tariff and quota rules. The barriers to trade erected during the Great Depression have yet to entirely recede. Not surprisingly, firms that export are more productive than non- exporting firms, thus are more able to absorb the additional costs of selling goods outside the State.
The data on exports is the flip side to the globalization debate. However, the story told by export firms is exactly the same as that by imports. The free and easy movement of trade across borders allows productivity – not local tariffs or quotas – to dictate the location of production. The result is that Hoosiers produce goods and services in which they have a comparative advantage. So do our trading partners. The end result is to raise standards of living in all regions.
About the Author
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