4th Quarter 2013

Host to about 850 foreign firms, the state remains very attractive to international investors.

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Competitiveness continued

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That conclusion seems supported by looking at the demand-adaptability indices. The U.S. index over the entire 10-year period is 1.22, a modestly positive export profile if 1 is average. When we divide the decade into "pre" and "post" crash, we find the U.S. emerged after the crash with a stronger adaptability to global demand (1.42) than it had in the years just before it (1.07). Tennessee, with a .58 overall index, is even starker. In the first years of the century, it scored quite poorly (.449). (You may recall several years of rather insipid state export growth over this period.) However, after the crash, its index of 3.24 is signaling the state economy has become markedly stronger in its export profile.

Why did Tennessee shift so much? In a nutshell, at the start of the century, Tennessee still exported significant amounts of apparels, a relatively declining export industry globally, while its other major export sectors (cotton, transportation equipment, chemicals) were experiencing what turned out to be temporary global lulls. After the crash, these three industries came back strong. They were joined by newer or greatly expanded export industries (computer products, pharmaceuticals, medical goods, artificial filament tow) and a few old reliables (whiskey) that are all increasingly large sectors of global trade. As a result, the state's exports, weighted by commodity market shares, are more heavily located in relatively growing markets than even 10 years ago.

At the Local Level

We can extend this analysis within Tennessee. Which regions of the state might be considered the most competitive based on their adaptability to changing global market demands? To calculate this, we made a few changes. Because global trade is compiled based on the Harmonized System, while most local economic statistics in the U.S. use the NAICS system, we compare state regions to total U.S. exports rather than world imports. (It is possible to convert between the two systems, but it isn't easy, and the results depend upon the level of detail at which the conversion is made).

So we are now asking "to what degree is the region's economic activity located in America's strongest export sectors?" An index of 1 is average. We use the Brookings Institution's estimates of regional exports. These are imputations based on which industries are in the region, so we might better see these indices as telling us the industry component of a region's overall export competitiveness. That is, they do not totally capture the quality of the firms located in the region; they only account for the impact of which industries are located in the region. Finally, to dampen year-to-year swings, which are more important in a smaller economy, we compare the 2003/4 average to the 2011/12 average.

We see enormous diversity across the state in fundamental export competitiveness. For 2011/12, the highest (modified) demand-adaptability index is that of the Lewisburg micropolitan area (1.87). Though currently a relatively small exporting region, the metalwork, chemicals, and engines it produces are all among America's most robust export industries. Ten of the state's 31 statistical regions (30 metro- or micropolitan statistical areas + the remaining part of the state) scored above 1. [2] The lowest score is Athens' .23. Its economy is heavily based in auto parts and electronics, both of which are slowly losing their share of American exports.

As might be expected from our look at the entire state, most of its regions have improved in competitiveness over the past decade. In 2003/4, not a single region scored as even average. In the years since, Athens was the only area that saw its index go down, and even that was trivial (.245 to .23). Columbia joined Lewisburg in basically tripling its score. The map below indicates each region's index. [map]

There are many ways to evaluate an economy's export possibilities and competitiveness. Here we looked at what an economy produces and sells. Is it where the global demand is? Is it where that demand is growing most rapidly? We are heartened by a significant improvement in Tennessee's position from a decade ago. That said, things can change fast. Competitiveness is a continuing process, not a final result.

[2] This article uses Tennessee's core-based statistical areas as defined at the time the data was collected. The OMB redefined these areas in 2013.

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