According to Afonso, the impact of international trade on economic growth foreign trade, enables technological transfers and foreign investment and belongs among the main sources of economic growth.
The association between economic growth and international trade has started to be investigated using international trade theories originating from classical economics. The specialisation of each country in the production of products where a comparative advantage exits and trade with other countries contributes to the economic growth.
Assessing the causalities between international trade and macroeconomic performance or growth has been a subject of many researchers and their studies in many African, Asian, and European countries.
The methods frequently used in research were econometric models, such as ARDL, the Johansen multivariate cointegration model, the autoregressive distributed lag cointegration framework, and statistical regression models. In most studies a positive impact of foreign trade on GDP was revealed.
The impact of foreign trade on economic performance can also be measured by specific indicators such as multipliers of export and export, the contribution of trade balance, and input-output analysis. This approach was used in studies by several authors.
Many current empirical studies focusing on investigating the relationship between foreign trade and economic output worldwide indicate that the issue has been extensively discussed and is worthy of investigation. However, such research for industries or economic sectors is insufficient. Therefore, this study deals with the evaluation of the impact of foreign trade flows on the sectoral economy within the wood-based industries (WBI). Secondly, most empirical studies applied econometric and statistical methods. An approach using indicators has rarely been used.
The national strategies for the development of wood-based industries (WBI) in EU countries are aimed at higher utilisation of the country’s own resources of wood as a raw material and the finalisation of wood processing in the country of origin.
The high level of exports of wood as a raw material in Slovakia and the Czech Republic contributes to an active trade balance, which on the one hand is positive for the economy of these countries, but on the other hand is not in line with national strategies.
The production of wood-based products in the conditions of the Slovak Republic and the Czech Republic has a long tradition and, as one of the options for obtaining renewable resources, is closely linked to many sectors of the national economies.
Both countries have sufficient sources of wood as a raw material to produce wood products. WBI provides an economic, environmental, and social contribution based on the use of renewable resources.
Wood-based products are recyclable, and reusable either in new products or as energy. They are biodegradable and can replace materials from non-renewable sources.
The WBI sector is an important part of the emerging economy, a new promising direction based on biotechnology. Support for the development of industries based on renewable resources is also declared in the European Union’s strategy.
The principles of the circular economy and the bioeconomy, which are currently being intensively discussed and promoted, indicate the importance of developing wood-based industries as strategic sectors of national economies.
The study of determinants influencing the WBI economy and its improvement is therefore indispensable and important in the implementation of national and transnational economic development strategies.
The authors of several scientific studies have explored the possibilities of assessing the competitiveness of wood-based industries. Works focusing on the analysis of competitiveness in Slovakia and Czechia have found that comparative advantages are below the EU average and their level is steadily decreasing. However, the Czech and Slovak wood-based industries have the potential for international economic growth in terms of higher valorisation of domestic wood as a raw material. The study by Bojnec and Ferto explored the comparative relative trade advantage in finished wood products experienced by the Czech and Slovak Republics.
The aim of this paper is to examine the effects of foreign trade on the economy of the wood-based industry and to compare them in sectors with different degrees of value-added, using not only statistical methods, but also specific indicators.
Statistical and econometric methods can identify the significance and direction of influence between independent and dependent variables in models. However, they do not allow for a more precise analysis when both flows of foreign trade are dynamic. This is considered by the specific indicators designed to assess the impact of foreign trade flows and the net export on sectoral economic indicators.
The contribution of this paper is an assessment of the impact of foreign trade at the mesoeconomic level, i.e., at the sectoral level, which is based on the use of a combination of methods of statistical analysis with the calculation of specific indicators measuring the impact of foreign trade on the economy of the sector.
The article also provides new empirical insights into factors affecting the economic development of wood-based industries with different degrees of value-added creation.
Associations Between Economic Outputs And The Foreign Trade
The measurement of economic growth and performance is based on different indicators at different levels of the economy. Macroeconomic performance is assessed on the basis of gross national or domestic product (GDP), which includes net exports, i.e., the difference between national exports and imports. Thus, foreign trade can affect the value of GDP positively or negatively.
The economic performance of individual enterprises is assessed through financial indicators of profitability, profit, economic and market value-added. At the sectoral level, which represents the mesoeconomic level, it is a combination or link between the macroeconomic and enterprise approaches to measuring economic performance. However, the assessment at all levels is based on the same principle, the value added by processing.
Mesoeconomics is based on how to measure the effects of the structures of the macroeconomic reasoning of aggregate supply and demand, and microeconomic buying and selling and supply and demand, and mainly how these forces play out.
Foreign trade is important because of its effect on levels of employment. In addition, the competitiveness of products in the global market affects the increase in income. In the theory of economic growth and international trade, competitiveness is defined as the ability to gain profitability and maintain market share. The competitive performance of a country or a sector of the national economy is demonstrated by using trade indicators, including trade balance.
The relationships and linkages between foreign trade flows and the economic growth of national economies have been analysed by statistical and econometric models in several papers. A standard growth-regression analysis was carried out by Were in African countries. Econometric, non-parametric approaches, ARDL and Johansen multivariate cointegration models have been used in analyses in China and in other Asian, African, and European countries. These studies confirmed that growth in foreign trade volume positively affected GDP growth in China, and a positive influence on GDP was recorded by export growth while conversely imports affected GDP negatively in Ghana.
The studies by Reppas and Christopoulus and Cetin revealed indirection by assessing the causality between international trade and macroeconomic growth. The impact of European integration on Visegrad countries trade using more advanced econometric techniques, examined by Gauger and Sledziewska, showed the influence on trade of higher value-added goods.
To measure the effects of trade balance flows on macroeconomic growth is possible via specific indicators. The most used measurement is quantification by so-called contribution to economic growth.
This value expresses the contribution of net exports to the growth of GDP as a weighted difference between the export and import growth rate, where weights are portions of exports and portions of imports in relation to GDP based on the previous period.
Another measure of the impact of exports on economic growth is a quantification of the impact of exports using an input–output analysis based on the analysis of the direct and indirect intensity of home production to import.
The contribution of net exports to economic growth is calculated as total exports after deducting induced imports for intermediate consumption. Mandras and Salotti estimated the multipliers of production value and added value using input-output analysis of the smart industries in the Western Balkan countries.
Multipliers of the final use quantify home production, imports in the particular year of induced export, the total consumption of households, the total consumption of the government, the creation of gross capital or the amount of produced added value, and employment at all stages of production.
Marcato et al. explored value-added trade measures to illustrate countries’ specialisation patterns in vertically-integrated production networks. A positive linear association between higher levels of domestic value added and higher levels of RCA was found.
The contribution of foreign trade to the competitiveness of product groups in South Korea using CTBI (contribution to trade balance index) as an indicator was confirmed in exports of high value-added products in the study by Erkan and Aybudak.
According to authors Pawera et al. and Stefanovic et al., indicators measuring industrial international competitiveness are being continuously improved. They constructed a comprehensive international-competitiveness index by combining the variation coefficient and the entropy method. It was based on the market share index (MS), trade competitiveness index (TC), revealed comparative advantage index (RCA), and relative trade advantage index (RTA).
Trade balance is considered a factor of political-economic cooperation as well as a factor of economic development influencing corporate performance.
Literature Review On Timber Sector
In the study by Bojnec and Ferto it was found that the central European countries export lower value-added raw wood and semifinished wood products to Austria, and Austria exports higher value-added wood products back to the central European countries. Similarly, studies by the UN Economic Commission for Europe revealed that the increased supply of Czech raw wood in 2016 was mostly exported to Germany when exports increased by +12.2 percent.
The study of Toth et al. revealed the strong correlation between unplanned wood harvesting by incidental logging and the decrease in wood prices. More than 42 percent of the harvested timber is purchased by German and Austrian partners based on long-term contracts with Czech producers.
Michal et al. in their study considered the export orientation of the timber trade an ongoing disaster due to the current capacity and production potential of the wood-based sector in the Czech Republic. Loučanova et al., also stated that most Slovak wood processing faces difficulties in direct access to foreign markets and their production is often sold as semi-finished or low value products (raw material such as sawnwood) to processing companies.
Slovakia is inter-industry specialised, but with the increasing added value of products Slovak trade could become intra-industry specialised.
According to the study by Slavova, exports of Bulgarian wooden products show a steady trend of growth over the years 2016 and 2019 and the branch is described by a positive trade balance.
Key factors of the economic growth are population, natural energy and resources, fixed assets and infrastructure, organisation and entrepreneurship, enterprise knowledge and technological change.
The furniture enterprises have been forced for social reasons (the Covid-19 Pandemic) to invest in new technologies as a key tool to enhance their competitiveness.
Presumptions for the development of the forestry and wood-based industry are increasing the level of production, consumption, and export of wood and paper commodities with higher added value.
Similar results were presented in the published paper by Keegan et al. whose research sample was from the EU. In addition, this statement was confirmed by Gordeev in a study from Russia. Vu et al. found that the low value added and low productivity of Vietnam’s wood processing industry caused a gradual fall in the international competitiveness growth rate.
Schier et al., authors of the study used The Global Forest Products Model (GFPM) as a partial model for a forest market simulating production, consumption, and trade in wood and wood-based products. The structure of the model distinguishes between raw, intermediate, and finished products. They concluded that both the production of roundwood and wood products shifted from the EU to non-EU countries to varying degrees and decreasing production of roundwood could be a valid estimator for future scenarios in building processes.
In addition, from the research results it could be stated that an increase in possibly occurring leakage effects is not significantly affected by the pre-set supply and demand elasticities.
According to theories of international trade, specialisation allows countries to focus on production in which they can make the most efficient use of available domestic resources and achieve the best quality.
The Heckscher–Ohlin model of international trade speaks of a comparative advantage in a particular factor of production by virtue of its relatively better endowment.
The price of the productive resource that a country has an abundance of is low, and so countries specialise in production and exports in those commodities that are input-intensive to produce and with which they are well endowed.
In imports, on the other hand, they specialise in commodities whose production is demanding of scarce input resources. As Slovakia and the Czech Republic are well equipped with inputs of wood as a raw material, the processing of domestic raw material, the production of final wood products with the highest added value and their subsequent export should contribute to economic growth and to the higher performance of the wood-based industries.
At the same time, these countries do not need to achieve high levels of imports of wood as a raw material and semi-finished wood products.
After reviewing the literature and scientific studies dealing with the impact of the foreign trade on macroeconomic growth, it can be assumed that the export of high value-added finished wood products will have positive effects on the economy of the sector, while the impact of imports will be negative. At the same time, simultaneous changes in both export and import volumes must be considered when assessing the impact of foreign trade and the economic performance of the sectors. These findings were the basis for setting the research propositions.
Materials And Methods For The Investigation
The literature review concerning associations between economic outputs and the foreign trade (FT) was a basis for the research goals and methodology statement. The object of investigation is the wood-based industry and its two sectors generating different levels of value-added rate:
•Timber industry: processing of roundwood and production of semifinished products
•Furniture industry: production of high value-added final products
The research methodology was designed thus:
•Formulation of the research problem and propositions
•Statistical methods proposal
•Design of specific measures evaluating contribution of FT to economic results of WBI sectors
•Data collection: official databases of secondary data
•Statistical analysis
•Indicator values calculation
•Interpretation of results achieved and discussion
•Conclusions and recommendations
Following the goal of the paper, the research propositions were defined:
Proposition 1.
The export of high value-added wood products affects the economic performance of the sector positively.
Proposition 2.
The export of low value-added wood products has a negative impact on the economic performance of the sector.
Proposition 3.
The import of low value-added wood-based products influences the performance of the sector positively.
Proposition 4.
Net export growth has a positive effect on the economic indicators of the wood-based sector regardless of the value-added rate.
The input data was gained by processing statistical data on international trade and economic indicators in the timber and furniture industries in the Slovak and Czech Republics for the period 2009–2019.
The source of data was official databases. Annual data for the foreign trade of the economic sectors was found in Eurostat databases by NACE (statistical classification of economic activities in the European community) activities and commodity structure.
According to the Eurostat methodology, the division NACE 16 includes the manufacture of wood products, such as lumber, plywood, veneers, wood containers, wood flooring, wood trusses, and prefabricated wood buildings.
The division NACE 31 includes the manufacture of furniture and related products of any material except stone, concrete and ceramics. Also excluded are metal furniture manufacturing which is classified in division 25 and plastic furniture, classified in division 22.
The remaining material for furniture manufacturing is wood, so the data from this division mainly concern wooden furniture. According to information requested from the Slovak and Czech Statistical Bureaux, the share of wooden furniture in NACE 31 is more than 97 percent.
The economic indicators of the timber and furniture sectors—the revenues, value added, and profit before taxation (EBIT)—were obtained from the Slovak Statistical Office—Slovstat, datacube and the Ministry of Industry and Trade of the Czech Republic.
The indicators and methods evaluating the impacts of foreign trade on economic growth were applied at a macroeconomic level in the relevant empirical studies. Measurement at the mesoeconomic (industry) level needed to modify the indicators.
To find the relationship between economic indicators and foreign trade, the multiple linear regression (MLR) method was used. MLR is a statistical technique that uses several explanatory variables to predict the outcome of the response variable.
The objective of MLR is to model the linear relationship between the explanatory (independent) variables and the response (dependent) variable. In interpreting the results of multiple regression, the beta coefficients are valid while all other variables remain constant.
The core part of this investigation was the calculation of designed indicators to measure the impact of foreign trade on the economic results of the WBI sectors. The indicator used in the study was the contribution of foreign trade (CFT) to the growth of economic indicators, which expresses the contribution of net export to a year-on-year growth rate of the chosen economic indicator for the industry.
Using the CFT indicator, the foreign trade impact on revenue, added value, and EBIT of each sector was analysed. The values of the CFT indicator are interpreted as follows: if CFT > 0 foreign trade contributes to industry performance; if CFT < 0 foreign trade influences the economic performance negatively.
Based on a statistical method and specific indicators, the study was carried out in wood-based sectors generating different levels of value-added in Slovakia and Czechia for a period of 11 years (2009–2019).
The impact of the trade balance on the economy of industries could be identified and analysed more accurately and deeply through a comparison of the growth indices of net exports, imports, and exports (Ii) with values of CFT indicators.
Evaluating The Impact Of International Trade On The Economy Of Wood-Based Sectors
Results of the statistical MLR method and the calculated values of indicators evaluating the impact of international trade on the economy of two wood-based sectors in Slovakia and Czechia, the timber and furniture industries, are presented.
Wood-based industries represent a comparable share of GDP near 4 percent in both surveyed countries. In the period of the last 11 years, the share of exports of WBI to national exports was 2.7 percent in Slovakia and 2.2 percent in Czechia on average.
The growing trend of economic indicators was recorded in both sectors and both countries. The foreign trade balance surplus has gradually fallen during the monitored period in the timber and furniture industries of Czechia.
In the Slovak timber industry, a surplus of foreign trade is gradually growing and in the furniture industry an active trade balance has declined and has turned to a passive one since 2016. The Slovak and Czech timber industries reached an average export performance of 38 percent. As for the furniture industry, the export performance was on average 47 percent in Slovakia and 19 percent in Czechia.
Verification Of Research Propositions
Based on the results achieved the research propositions stated as the objective of the study can be verified:
Verification of Proposition 1.
The export of high value-added wood products affects the economic performance of the sector positively.
The higher value-added rate was in the furniture industry. The identified MLR models revealed that exports had a significant impact in the opposite direction on revenue and added value in the furniture sector of Slovakia and on all economic indicators in the Czech Republic, if imports held constant.
However, negative changes in economic indicators caused by exports are small. CFT indicators revealed a positive effect of export growth by simultaneous growth in imports that was smaller than export growth. The export growth affected EBIT and value added of the furniture sector in both countries positively.
Proposition 1 was confirmed by the simultaneous growth of exports and imports.
Verification of Proposition 2.
The export of low value-added wood products has a negative impact on the economic performance of the sector.
The statistical MLR models did not prove a significant impact from exports on the economic indicators of the timber sector in both countries if imports remain unchanged. The values of CFT indices demonstrated that export growth, against simultaneous but smaller growth in imports, in the Czech and Slovak timber industries caused a significant increase in EBIT and value added, while revenue was affected only slightly.
Proposition 2 was not confirmed.
Verification of Proposition 3.
The import of low value-added wood-based products influences the performance of the sector positively.
According to the identified multivariate regression models, imports in the timber industry have a significant positive impact on added value and EBIT in the Czech Republic and slightly on revenue in Slovakia if exports remain the same. The CFT indicators revealed a positive impact of imports on the economic indicators of the industry only if imports increase less than exports.
Proposition 3 was confirmed only for the Czech Republic.
Verification of Proposition 4.
Net export growth has a positive effect on the economic indicators of the wood-based sectors regardless of the value-added rate.
The CFT indicators uncovered that net export growth has a strong impact on the increase in EBIT and added value, and slightly affects revenue if imports grow less than exports of timber and furniture products. The stronger positive effect on profit was seen in a decrease in imports of furniture products in Czechia and Slovakia.
Proposition 4 was confirmed.
Conclusions
The results of the presented study showed that analysing the interactions between foreign trade and economic performance is important in researching the factors influencing the economic development of countries and industries.
The effects of foreign trade on wood-based industries with different levels of value-added creation were investigated using a statistical method over a period of 11 years in 2 EU countries.
The contribution of this paper to the development of current knowledge can be the carrying out of an analysis at the industry level and the use of a combination of statistical methods with the calculation of indicators measuring the impact of foreign trade on the economy of the industry.
An ambition of developed countries is to achieve the best possible valorisation of home resources instead of doing business with resources. In the timber industry of both countries, exports have not been shown to have a statistically significant impact on the sector’s economy. Nevertheless, the trade balance is positive and net exports are growing.
It can be concluded that the high intensity of foreign trade brings higher profits to timber traders than to domestic producers. The furniture industry benefits from imports, which mainly bring higher sales and a slight increase in value added, without having an impact on EBIT.
Furniture manufacturing could increase its economic performance by a decrease in imports and an increase in exports. A negative trade balance in the Slovak furniture sector has had a negative impact on its economic performance.
The economic development of WBI in the Slovak and Czech Republics can be achieved by more intensive use of domestic wood as a raw material and its higher valorisation.
Although the results of the study showed that the comparative advantage is achieved by the lower value-added sector and the growth of imports contributes to the economic performance of this sector, the processing of imported wood semi-finished products in the furniture sector reduces the competitiveness of the higher value-added products as well as the economic growth of the furniture industry.
Positive effects of foreign trade on the economy of the two WBI sectors under study can be achieved if export growth is higher than import growth and the balance of foreign trade is positive with an increasing trend. Imports are also important for the WBI economy; their growth contributes to the growth of output and value added in the downstream wood-based industries with the production of higher value-added final products.
The findings of the study lead to recommendations for practitioners and economic policy makers in both surveyed countries. The proposed measures for policymakers that would contribute to increasing the economic performance and competitiveness of WBI in the Slovak and Czech Republic are as follows:
Support for domestic wood processors and furniture manufacturers by giving priority to the supply of input materials (wood and semi-finished wood products). The governments should adopt a measure to allow the export of timber and semi-finished wood products only after domestic demand has been met.
Promotion of furniture exports: government measures and instruments should encourage furniture companies to enter foreign markets, through more intensive pro-export financial instruments.
Creating more favourable conditions and advantages for domestic producers of lower value-added products than for traders in terms of legislative and financial instruments.
Encouraging the import of semi-finished wood products only if demand by domestic processors for further processing is insufficiently met. The governments should take measures to restrict imports for the purpose of re-export without valorising the imported wood products by further processing and thus obtaining higher economic benefits.
Focus economic policy measures on improving the conditions for innovation in the wood-based industries and on improving the quality of exports in the structure of exported wood products.
The regulation of foreign trade in wood as a raw material and semi-finished wood products can be implemented by setting import and export quotas, which would represent the excess of domestic supply over domestic demand. The same approach can be applied at EU level, whereby an embargo on the export of wood as a raw material to non-EU countries can be placed under the common trade policy. The effects of the proposed measures will be reflected in an increase in the commercial competitiveness of the furniture industry and an increase in value added and EBIT in all wood-based industries.
Future research will be directed to the examination of export quality and specific tools of economic policy towards the economic development of the timber and furniture manufacturing sectors.
