This paper investigates the international wine trade based on a new sophistication index (called C-Consy) focused on import flows. We posit that the sophistication level of destination countries provides relevant information on the kind of competition a product is going to meet in the final market. The sophistication level for the clients of the major world exporters is assessed for the 2006/07–2016/17 timespan. The main results of our analysis can be summarized as follows: (a) as expected, the category of bottled wines is more sophisticated than the one of bulk wines. However, for some exporters the destination markets for the latter are, indeed, more sophisticated; the C-Consy for sparkling wines varies widely across the destination markets of the main exporters here analyzed, suggesting a variety of different uses; (b) Products sold by the Old Wine World are generally more sophisticated, this is particularly true for Italy and France together with New Zealand which belongs to the so called New Wine World; (c) some exporters differentiate their destinations widely, especially according to wine items, while others concentrate their set of clients in the search for synergies.
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The index, based on the Ricardian comparative advantage concept, is defined as the ratio of two shares: the share of a country’s total exports of the commodity of interest in its total exports, and the share of world exports of the same commodity in total world exports; it takes a value between 0 and infinite. A Country is said to have a revealed comparative advantage if the value is more than one (Balassa 1965; De Benedictis and Tamberi 2004).
Weights based on RCAs have also been proposed (Hausmann et al. 2007).
Indeed, income is not the only factor that can influence import demand. Besides income, many other personal as well as social features may impact consumption and thus imports. First of all, it is worth recalling the impact of income distribution on consumption patterns (Musgrove 1980). More heterogeneous income distributions likely push the demand up for luxury goods and for goods that act as “signalling of status” (i.e. overall high-quality goods). As higher income countries tend to have a smoother income distribution path, it would have been interesting to embed a measure for income distribution in our index. However, our attempts so far did not provide useful results, so we leave this task for future research.
Among the other factors that are likely to impact on consumption and imports we here limit to recall a few such as culture, traditions, religion, education, lifestyles, habits and so forth (Cleveland et al. 2013; Michael 1975; Shaw and Clarke 1998). Some of these are usually considered to be positively related to income (i.e. education), while some others may not (i.e. tradition and culture). However, in line with the sophistication literature and as in many other fields, we posit that income remains a key factor in explaining the sophistication of import flows (Carbone et al. 2020).
This can be due to the penetration in a new market or to the change in the share of any client.
Trade data comes from United Nations ComTrade databank. The index is built on the import flows of 130 countries in years 2006/07 and 2016/17 where the average is calculated for each biennium. Data are in current US dollars (USD). The three wine items are defined at 6-digit level of HS-6 1996 version. The 130 countries considered represent around 90% of world imports. For each country the GDPpc is measured in International Dollars at 2011 PPP (Purchasing Power Parity) values as released by the World Bank (WDI-World Development Indicators).
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Carbone, A., Demaria, F. & Henke, R. The Sophistication of International Wine Trade: A New Import Measure. Ital Econ J (2021). https://doi.org/10.1007/s40797-020-00139-8
- International wine trade
- Import sophistication
- International competition