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Last modified: Monday, September 10, 2012

IU Kelley study identifies state industries whose international trade efforts could be stronger

Sept. 10, 2012

BLOOMINGTON, Ind. -- While Indiana exports have been growing at a faster rate than the nation's, a new Indiana University report identifies 10 state industries whose trade efforts could be even stronger.

Indiana's major exporters appear to be focusing their efforts on a limited number of countries, which explains why some Hoosier industries have an "export gap," relative to the rest of the nation.

Based on their share of Indiana's employment, companies that produce iron, steel, aluminum, engines and turbines, motor vehicles and parts and other products could constitute a much greater share of state exports, said the report, "Mind the Gap: Identifying Opportunities for Export Expansion in Indiana."

"The evidence presented in this report suggests that Indiana is not reaching its exporting potential in some of its most important industries," said Timothy Slaper, director of economic analysis at the Indiana Business Research Center in IU's Kelley School of Business.

"A lack of diversification in export destination countries may be to blame. ... We would advise economic development practitioners to study companies' current export destinations and encourage a broader range of potential partner nations," added Slaper, a co-author of the report.

Tim Slaper

Timothy Slaper

Print-Quality Photo

The top 10 list of "under-exporting industries" also includes pesticides, fertilizers and other agricultural chemicals; communications equipment; grain and oilseed milling products; and glass and glass products. As a group, these industries account for nearly 110,000 jobs or 4 percent of Indiana's employment.

"Given their share of Indiana's employment, our analysis suggests that they could still be exporting more," Slaper said.

In general, Indiana has a fairly strong export profile. In 2011, state exports totaled 11.6 percent of its gross domestic product, which was higher than the national ratio of 9.9 percent. Indiana's strength in manufacturing was a contributing factor.

One goal of the research was to identify small and medium-size enterprises, or SMEs, that may not have the resources or expertise to market their products overseas but could benefit from programs to encourage exporting. Indiana Business Research Center researchers identified more than 1,000 SMEs in Indiana that could benefit from policies and programs that encourage them to export their products. The study also shows where they tend to cluster geographically.

Not surprising, Marion County and the city of Indianapolis have the most even distribution of small and medium-sized exporting firms that are under-exporting, with at least a handful of workers in every industry, except pesticides, fertilizers and agricultural chemicals. Elkhart, Noble, Bartholomew and DeKalb counties also led with high SME employment.

"Northern Indiana ... boasts much of the employment in these industries. This should not be surprising, as this is the source of much of Indiana's manufacturing output, especially in the motor vehicle-related industries," the report said. "Marion County also is home to a large number of SME employees in under-exporting industries.

"For those looking to help SMEs boost their exports, these two regions appear to be prime locations to begin work."

Slaper and his colleagues also looked at prior academic research on what economic development officials can do to spur exports. They found that "prior exporting breeds future exporting." For example, a study of Mexican firms showed that the presence of multinational exporters increased the probability of exporting by other firms in the same industry and region.

"State export promotion expenditures have little impact on firms' decision to export," they noted. "This is important, because previous research also showed that direct expenditures to lower the costs of exporting have little effect, while programs that bolster exporting revenues have a more pronounced effect.

"Given that factors outside the government's control play such a large role in determining export decisions (such as firm profitability and exchange rates), subsidy programs that are linked to export revenues seem to be the best policy option if governments intend to do something to promote exports."

Funding for the research was provided by the Center for International Business and Research at Indiana University.

A complete copy of the study is available at the Indiana Business Research Center's website.