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Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Analysis of Trade Competitiveness MOLDOVA TRADE STUDY MOLDOVA The World Bank Note 1 1 Table of Contents 1. Executive Summary .................................................................................................................. 6 2. Introduction ............................................................................................................................... 9 3. Part I. Export Outcomes Analysis ........................................................................................... 10 3.1 Overall Trade Trends .............................................................................................................. 10 3.1.1 Trade growth and balance ............................................................................................ 10 3.2 Openness to Trade............................................................................................................... 14 3.2.1 Outcomes-based indicators of openness ...................................................................... 15 3.2.2 Policy-related determinants of trade openness ........................................................... 17 3.2.3 Foreign direct investment ............................................................................................ 19 3.2.4 Composition of exports ................................................................................................ 22 3.2.5 Growth orientation in products .................................................................................... 24 3.2.6 Services ....................................................................................................................... 25 3.2.7 Main export markets ................................................................................................... 26 3.2.8 Growth orientation in markets ..................................................................................... 28 3.3 Export Diversification ......................................................................................................... 29 3.3.1 Product dimension ....................................................................................................... 29 3.3.2 Market dimension ..................................................................................................... 31 3.3.3 Contribution of diversification to export growth ...................................................... 33 3.4 Quality and Sophistication ............................................................................................ 33 3.4.1 Technological classification...................................................................................... 34 3.4.2 Quality....................................................................................................................... 35 3.4.3 Quality in top export products .................................................................................. 36 3.4.4 Sophistication ............................................................................................................ 39 3.5 Survival ......................................................................................................................... 41 4. Part II. Assessing Moldova’s Main Competitiveness Challenges .......................................... 43 4.1 What Factors Enhance and Constrain Moldovan Firms’ Productivity? ....................... 44 4.1.1 Productivity .................................................................................................................. 44 4.1.2 Firm-level determinants of productivity ................................................................... 44 4.1.3 Linking productivity and quality of backbone services ............................................ 45 4.2 Linking Productivity with the Business Environment and Governance ....................... 52 4.2.2 Business regulations: taxes, red tape, and trade and customs procedures ................ 52 4.2.3 Governance and institutional quality ........................................................................ 56 5. Policy Recommendations ....................................................................................................... 58 6. Appendix ................................................................................................................................. 61 List of Figures Figure 1. Evolution of Merchandise Trade, 2000-2013 ................................................................ 11 Figure 2. Relationship Between Re-exports and Exports of Transportation Services .................. 12 Figure 3. Merchandise Exports Performance, 2000-2013 ........................................................... 13 Figure 4. Evolution of Services Trade, 2000-2013 ....................................................................... 13 Figure 5. Share of Services in Total Exports ................................................................................ 14 Figure 6. Openness to Trade, 2000-2013 ...................................................................................... 15 2 Figure 7. Trade in Services as Percent of GDP vs. Income Levels .............................................. 16 Figure 8. Final Bound vs. MFN Applied Tariffs on Imports, 2013 .............................................. 17 Figure 9. Bound vs. MFN Applied Tariffs on Imports, 2013 ....................................................... 18 Figure 10. FDI Inflows as Percent of GDP, 1992-2013 ............................................................... 19 Figure 11. Benchmarking Moldova’s FDI Attraction Levels ....................................................... 20 Figure 12. FDI Inward Stock, by Sector ....................................................................................... 21 Figure 13. FDI Inward Stock by Origin, 2012 .............................................................................. 21 Figure 14. Evolution of RCA, 2000-2013 .................................................................................... 23 Figure 15. Growth Orientation in Products, 2003-2013 ............................................................... 25 Figure 16. Sectoral Composition of Services Exports .................................................................. 25 Figure 17. Main Export Destinations, 2000-2013 ........................................................................ 27 Figure 18. Export Composition by Region ................................................................................... 28 Figure 19. Growth Orientation in Markets ................................................................................... 28 Figure 20. Number of Exported Products ..................................................................................... 30 Figure 21. HHI for Products ......................................................................................................... 30 Figure 22. Share of Top Products in Total Exports, 2000-2013 ................................................... 31 Figure 23. Number of Markets, 2000-2013 .................................................................................. 31 Figure 24. HHI for Markets, 2000-2013 ....................................................................................... 31 Figure 25. Share of Top Markets in Total Exports, 2000-2013 .................................................... 32 Figure 26. Decomposition of Export Growth Along Extensive and Intensive Margins ............... 33 Figure 27. Technological Classification of Exports (Lall Classification, %) ............................... 34 Figure 28. Export Quality Index, 2000-2011 ................................................................................ 35 Figure 29. Relative Quality of Traditional Exports, 2003-2013 ................................................... 36 Figure 30. Relative Quality of New Exports, 2003-2013 ............................................................. 37 Figure 31. EXPY for Moldova and Comparators, 2000-2013 ...................................................... 40 Figure 32. Export Relationships Survival Rates (2000– 2013) .................................................... 42 Figure 33. Export Relationships Survival Rates by Sector, 1996–2012 ....................................... 42 Figure 34. Median TFP in Moldova by Region ............................................................................ 44 Figure 35. Productivity Premium of Exporters, Innovators, Foreign Firms in Moldova ............. 45 Figure 36. Median Productivity Across Sectors in Moldova ........................................................ 46 Figure 37. Perception-Based Quality of Services ......................................................................... 47 Figure 38. Perception-Based Quality of Services by Region ....................................................... 48 Figure 39. Objective Indicators of the Quality of Services .......................................................... 49 Figure 40. Objective Indicators of the Quality of Services in Moldova, by Region ................... 50 Figure 41. Government Regulations, Moldova and Comparators ................................................ 53 Figure 42. Trading Across Borders Indicators .............................................................................. 54 Figure 43. Logistics Performance Index (LPI) for Moldova and Comparators, 2014