There are several ways to attempt to assess export competitiveness. One is at the level of firms. How many exporters are there? Are they exporting as much as they "ought to" given their size and product mix? Does the economy have more exporters, or fewer, than one might expect given the industries located there? We have devoted several past issues of Global Commerce to examining Tennessee from this perspective. Another way to assess competitiveness is to ask if an economy is producing what markets want. The best typewriter company in the world (if such a company still exists!) is in desperate straits. There's no market. That's an extreme example, but the idea holds. A key to competitiveness is to be invested in goods and services that are experiencing increasing, not falling, demand.
From this perspective, how does Tennessee stack up? Is its production evolving with changes in world markets? There are several methods to get at this question, but the central idea is to determine which industries and goods are increasing their global share of trade and then see if the local economy is invested in those sectors. If it is, that bodes well for future exporting success. If not, that may spell trouble and at least suggests a significant headwind in coming years.
Many people assume the fastest-growing products are those that involve new technologies or high tech. They are wrong. Over the past decade, growth in world markets has come largely from China and other emerging markets, and the products gaining market share reflect their needs and industries. The chart of those products that have gained the most market share in recent years shows that while, yes, there are a few electronics items, in fact most are commodities used in basic industrial production. (These calculations exclude trade in oil and gas. In 2012, that amounted to about 17% of the total value of global imports.) In fact, if we look at those products for which either the U.S. or Tennessee has forged the biggest gains in global market share, we see a mix of high- and low-tech goods.
Two ways to evaluate whether an economy is producing in the "right" sectors, the ones growing disproportionately rapidly, are to see what percentage of its trade is in these sectors and to calculate its demand-adaptability index. The first is straightforward. The larger the percentage of exports that are in dynamic, growing areas, the better the likely future export performance. The demand-adaptability index, developed by the Cambridge economist José Gabriel Palma, is a more formal measure of the degree to which an economy is able to adapt to changing global markets.  Essentially it's the ratio of the value of exports that are in dynamic, growing sectors over the value of exports that are not, weighted by the sizes of all the sectors.
The hardest part of either calculation is to choose the baseline years. The global crash of 2008 was so large that it can easily distort comparisons. For that reason, we provide a comparison using 2007 as the baseline and a second using 2002. (The most recent world trade figures are for 2012.) A higher percentage of exports in dynamic sectors is a positive sign. Both the U.S. and Tennessee have improved on this measure over the past decade. If we evaluate exports based on growing market share since 2002, about 53% of American exports are in dynamic sectors, whereas about 47% of Tennessee exports are in these same sectors. If we take 2007 as the baseline, the U.S. share rises a bit to 55%, while Tennessee's rises significantly to 57%. This might lead us to conclude that Tennessee began with a less competitive export profile at the start of the century but has more rapidly shifted into stronger export sectors.
 For those interested, the index is presented in Appendix I of J.G. Palma's "Flying Geese and Waddling Ducks: The Different Capabilities of East Asia and Latin America to 'Demand-Adapt' and 'Supply Upgrade' their Export Productive Capacity," in Mario Cimoli et al., Industrial Policy and Development (Oxford University Press, 2009). See also Nalitra Thaiprasert, "U.S. Export Adaptability at the State Level," Ball State University Center for Business and Economic Research (2011). Palma's index was developed using OECD imports. The indices calculated in this article are using total world imports.