South African exports under AGOA
Indicative Trade Potential
Match what a country is demonstrably good at against what a market demonstrably wants, then look at the gaps.
This is the practical pairing of the two measures before it. It matches products a country is demonstrably competitive in, using revealed comparative advantage, against products a market demonstrably wants, using that market’s import data. Then it flags the overlaps where trade is currently small.
Those overlaps are where the unrealised trade is, on paper.
What it cannot do
The clue is in the name. It is an indication and not a forecast. It says where to look, not what will happen, because it knows nothing about product standards, logistics, whether any firm has the capacity to fill an order, or whether somebody has already tried and failed for a reason nobody wrote down.
The equation
ITPij = min( Xi, Xj ) − Xij
- Xi
- what the exporter sells of this product to the whole world
- Xj
- what the market buys of this product from the whole world
- min(...)
- the smaller of the two, since neither side can trade more than it has or wants
- Xij
- what they already trade with each other
The definition follows Helmers and Pasteels (2006). It assumes the market could in principle absorb everything the exporter sells, which is exactly why the answer is called indicative rather than predicted.
Further reading
- WTO and UNCTAD (2012). A Practical Guide to Trade Policy Analysis. free Read it.The trade potential chapter, which sets out this indicator and its assumptions.
From An analysis of South Africa exports to the United States under the African Growth Opportunity Act, MCom in Management Practice (Trade Law and Policy), University of Cape Town, 2015. Read it in OpenUCT.