Vermont Leads Manufacturing Exports, Study Finds

Long-held opinions are hard to change. The state of the US manufacturing sector is a good example. Many people, particularly those in the Northeast and Midwest, hold tightly to memories of mass layoffs and factory closings nearly 20 years ago.



After two decades of transformation, today’s manufacturing sector is quite different. In fact, manufacturing exports, including food production and processing, have enjoyed positive annual growth rates in all but one state since 1986, point out the authors of Comparing Manufacturing Export Growth Across States: What Accounts for the Differences?, a recent journal article from the Federal Reserve Bank of St. Louis. Nationally, manufacturing exports as a share of Gross Domestic Product grew from 4.1 percent in 1986 to 7.0 percent in 1998.



The annual growth rate for manufacturing exports varied widely across the states. New Mexico experienced the greatest change during the ten years of 1988-1998, achieving an annual rate of 28.2 percent. Only Alaska witnessed a decline in manufacturing exports during the period.



A more accurate picture of the comparative changes across states, however, is presented by examining manufacturing exports as a share of Gross State Product (GSP). In 1998, Vermont had the greatest share of its GSP resulting from manufacturing exports at 23.80 percent. Manufacturing exports exceeded 10 percent of GSP in only three other states: Washington (20.24 %), Utah (12.72%) and Michigan (10.39%).



With a 13.72 point difference between 1988 and 1998, Vermont also enjoyed the greatest gain in percentage points for manufacturing exports during the time period. The second highest change in percentage points was a distant 3.89 points in Washington.



Manufacturing exports are increasing in importance for state economies in all but six states. Alaska, Delaware, District of Columbia, Louisiana, Michigan, and Montana – experienced a drop over the ten years in the share of GSP from manufacturing exports.



A closer examination of the data

To find explanations of why manufacturing export growth varied across the states was the purpose of writing Comparing Manufacturing Export Growth Across States: What Accounts for the Differences?, published in the January/February issue of the bimonthly Review. Federal Reserve Bank of St. Louis staff Cletus Coughlin and Patricia Pollard conducted a shift-share analysis to isolate the effects that may account for the differences among the states and the national average.



A state’s net relative change in manufacturing exports can be explained, the authors say, by:

• the industry mix effect – “change due to differences in the initial industry makeup of the state relative to the nation”
• the competitive effect – “change in exports due to differences between the export growth of a state’s industries and export growth at the national level, assuming the state’s industry mix is the same as the nation’s,” and,
• the destination effect – changes due to the differences in the geographic distribution of exports and the importance of developing foreign markets.

For 36 of the states, the article reports, the industry mix of the individual state became more similar to the national average from 1988-1998. The increased diversification of manufacturing exports within states may help insulate them from downturns in any particular sector. The increased homogeneity of the country’s manufacturing exports, however, indicates the industry mix is likely to be less important in accounting for future growth on the state level. Where exports are shipped is likely to become increasingly more important.



The competitive effect, the article states, is of increasing importance and more research on the determining factors for the effect would be useful in understanding state export performance. One economic explanation found in earlier studies that is highlighted in the article is “states with larger increases in human capital per worker have seen their industries outperform the corresponding national industries in terms of export growth.”



The article, presenting the findings of the shift-share analysis, the net relative change of each state’s manufacturing exports between 1988 and 1998, and several additional tables for all 50 states and the District of Columbia, can be downloaded at: http://www.stls.frb.org/docs/publications/review/01/0101cc.pdf