THE AVENUE JULY 28, 2010
In the national conversation on trade policy, it’s rare to get beyond exchange rates and trade agreements. While these are certainly important topics in their influence on the volume and balance of trade, the focus relegates the debate to federal policy and misses a myriad of opportunities at the state, local, and metropolitan level to promote exports. So what do exports look like on the ground level? In the places where they actually occur?
Our new report, Export Nation, aims to find out, placing the often airy macroeconomic discussion of exports to the the nation’s 100 largest metropolitan areas, where 64 percent of exports are produced, including 75 percent of service exports and 62 percent of manufacturing exports. Examining exports data at the metropolitan level provides a number of advantages.
The first thing that regional data provides is further insight into how exports matter and why we should care about them. According to our estimates, exports support 7.7 million jobs in the 100 largest metropolitan areas, and over the next five years millions more could come if export growth continues to grow at roughly five times the pace of GDP growth. Moreover, jobs in export industries tend to pay higher wages to attract the most talented workers, whatever their formal level of education. A worker can expect to earn roughly 2 percent higher wages for every billion dollars of exports from his or her metro’s industry; this could be as high as a 40 percent premium for the average worker in some of the biggest metro-industries like chemical manufacturing in the New York City metropolitan area, compared to a non-exporting industry in the same region.
Metro level data also allows one to investigate the variation and diversity in metropolitan export profiles and performance. For example, four metropolitan areas--Houston, New Orleans, Portland, and Wichita--doubled the real value of their exports from 2003 to 2008, according to the data. Illustrating that diversity, the leading industry in each metropolitan area differed in each case--chemicals, petroleum and coal refining, computers and electronics, and transportation equipment, respectively.
Variation in export orientation--the export share of gross metropolitan product--reveals another set of insights as to why companies in some metropolitan areas are able compete and succeed in international markets. A metropolitan area’s rate of patent production--a proxy for innovation--is highly correlated to its export orientation, even adjusting for the manufacturing share of employment, state characteristics, and other factors. San Jose is emblematic on this score; exporting 20 percent of its economy, it is the second most export oriented large metropolitan area behind Wichita, and it ranks first in patenting, share of science and technology workers, and share of college-educated foreign residents. This implies that policies that support innovation could have a big impact on export performance.
First of all, this means investing in human capital. Metropolitan areas need to constantly improve, broaden, and deepen the education of their own residents, encourage success in science and engineering, and where there is a dearth of specialized talent in the short run, they need to attract and retain high-skilled foreigners. Successful exporting metros like Wichita are doing this to some extent, with a network of industry-relevant community colleges and technical training schools, such as the Sedgwick County Technical Education and Training Authority.
Innovation also requires easy access to capital, and where private lenders are too risk-averse or short-term oriented, the federal government needs to strengthen and streamline its supportive services like loan guarantees and tax credits for research and development. State and local governments, non-profits, and research institutions also have a key role to play at the metropolitan level. For example, Wichita’s export industries are nurtured and supported at the state level by the Kansas Technology Enterprise Corporation (KTEC) and the state’s “angels” tax credit program, which encourages venture funding. At the local level, Wichita State’s National Institute for Aviation Research receives funding from KTEC and partners with a variety of local non-profits, including the Wichita Technology Corporation. More research should be done to identify best practices, but these look like promising institutions.
In short, if the United States is to benefit from the rising prosperity of developing countries, re-balance its consumption-heavy/savings-light economy, replace the millions of jobs lost during the recession, and provide good-paying jobs for a large fraction of its workforce, it will have to export more. To do that means solving metropolitan and regional challenges like low education and innovation rates, but also infrastructure quality and congestion. Resolving these challenges will be critical regardless of what other countries are doing in terms of unfair exchange rates, government subsidies for companies, or tariffs on U.S. products, but some metros are showing that it can be done.