This is the Pre-Published Version.

Transcription

1 This is he Pre-Published Version. Xu, J. J., & Yip, T. L. (01). Ship invesmen a a sandsill? an analysis of shipbuilding aciviies and policies. Applied Economics Leers, 19(), Ship Invesmen a a Sandsill? An Analysis of Shipbuilding Aciviies and Policies Jane Jing Xu a and Tsz Leung Yip b a Cardiff Business School, Cardiff Universiy, Cardiff, Unied Kingdom b Deparmen of Logisics and Mariime Sudies, Faculy of Business, The Hong Kong Polyechnic Universiy, Hung Hom, Hong Kong lgly@polyu.edu.hk (Dae of Version: 1 March 011) Absrac In he wake of he global financial crisis which sared around mid-008, he global shipbuilding indusry is no longer in a sae of euphoria as before. The volume of new ship orders dropped dramaically afer Augus 008. We are moivaed o examine hree issues in his paper: Firs, in he conex of shipping indusry, which variable/variables play he mos imporan role in a ship invesmen decision? Second, do governmen suppor and favourable invesmen condiions really help o save shipbuilding indusry from he disressing siuaion? Third, if we separae Japan, Souh Korea and China as leading shipbuilding clusers, wha will he cluser effec be? Our resuls indicae: The invesmen of ships can be decided by he freigh level, he supply of he marke (flee size), he demand of he ships (rade volume) and he ransporaion service share (locaion advanage). However, he sae of he freigh marke is of major imporance o he invesmen decision of ships. Shipbuilding price, secondhand ship price and foreign 1

2 Xu, J. J., & Yip, T. L. (01). Ship invesmen a a sandsill? an analysis of shipbuilding aciviies and policies. Applied Economics Leers, 19(), direc invesmen in ransporaion are proved o have no linkage o ship invesmen. Besides, he rising role of Japan, Souh Korea and China in shipbuilding is also idenified. Keywords: Mariime ranspor; shipbuilding marke; Shipping policy; Panel daa 1. Inroducion Ever since he financial crisis sared around mid-008, he global shipbuilding indusry has no been in a sae of euphoria any more. As shown in Figure 1, he conrac volume of booked new ships plummeed dramaically afer Augus 008, and no a single conrac was received by worldwide ship builders for a whole monh of May 009. Ship invesors wan o eiher cancel he shipbuilding orders or pu off he ship delivery daes. Ship manufacurers in he whole world are in a disressing siuaion. We are hereby moivaed o examine hree issues o beer undersand he economics of he shipbuilding marke. Firs, wha are he main deerminans of he amoun of shipbuilding order conracs? Research on shipbuilding marke has araced he aenion in he fields of mariime policy and inernaional business. I is necessary o explain and deermine how invesors decide o inves new ships. Second, shipbuilding indusry has been known as an indusry enjoying enormous governmen suppor and favourable invesmen condiions. Will hese favourable condiions really help o save shipbuilding indusry from he disress? Third, Japan, Souh Korea and China have been known as hree leading shipbuilding counries, our paper ess he cluser effec in shipbuilding indusry.

3 Xu, J. J., & Yip, T. L. (01). Ship invesmen a a sandsill? an analysis of shipbuilding aciviies and policies. Applied Economics Leers, 19(), Shipbuilding is a very aracive indusry for a counry as i can bring in subsanial amoun of foreign invesmen. However, mos sudies on shipbuilding are from he echnological perspecive, such as ship design and shipbuilding innovaion. There are relaively fewer economic analyses on shipbuilding marke. The limied ones have mosly focused on he shipbuilding prices, few of hem analysed how and why he amoun of shipbuilding orders flucuaes over ime. Unlike previous shipbuilding marke sudies in he lieraure, our paper exends previous sudies from he shipbuilding price o shipbuilding orders, in which he variable may beer indicae he shipbuilding aciviies. The deerminans of invesmen can be discussed from micro-economic and macroeconomic perspecives. A he firm level, he following wo facors are considered by mos sudies: expeced benefis and funds, i.e. changes in sales and profis and he level of capial sock, boh in erms of availabiliy and cos. The common variables hey considered as he deerminans of invesmen behaviours are: Capial sock (Eisner, 196; Jorgenson and Sephenson, 196), capaciy uilizaion (Anderson, 1967; Meyer and Glauber, 196), profis (Anderson, 1967; Eisner, 196; Meyer and Glauber, 196) and ineres rae (Anderson, 1967; Meyer and Glauber, 196). A he indusrial level, Boawrigh and Eaon (197) sudied he invesmen in plan and machinery in manufacuring indusry in he Unied Kingdom. Apar from he common elemens considered a he firm level, heir sudy emphasized he impac of governmenal incenive schemes on cerain indusries o simulae invesmen.

4 Xu, J. J., & Yip, T. L. (01). Ship invesmen a a sandsill? an analysis of shipbuilding aciviies and policies. Applied Economics Leers, 19(), In regard o he deerminans of ship invesmen, Marlow (1991) wroe a rilogy abou invesmen incenives and shipping indusry, and his hird paper specifically discussed he major deerminans of invesmen in he UK shipping indusry. Apar from he common deerminans of invesmen behaviour, expecaion was also included as one of he variables. In shipping conex, expecaions include, for example, he sae of he marke, freigh raes, changing coss, new echnology, and flag of regisry. Besides, Engelen, Meersman and Voorde (006) claimed ha he ordering behaviour is claimed o depend on he level of raes, since he earning poenial of a ship (freigh rae) over is lifeime is considered as he price of he ship. Bessler, Drobez and Seidel (008) suggesed ha ime series properies of freigh raes need o be well undersood before invesing in ship funds. While previous sudies are more abou ship invesmen behaviour of individual counries (Marlow, 1991; Kind and Srandenes, 00), our esimaions will be carried ou using panel daa analysis. The panel daa aggregaes all he individuals; his mehod allows us o model differences in behaviour across individuals over ime. The remainder of his paper is organized as follows: Daa Descripion and Hypohesis Developmen, Economeric Mehodology and Model Developmen, and finally Conclusions.. DATA DESCRIPTION AND HYPOTHESIS DEVELOPMENT Daa

5 Xu, J. J., & Yip, T. L. (01). Ship invesmen a a sandsill? an analysis of shipbuilding aciviies and policies. Applied Economics Leers, 19(), In his sudy, he daa se conains informaion of 1 major shipbuilding counries. The conracs received by hese 1 counries accoun for 9.78% of he conracs received worldwide in 008 (see Table 1). Our daa se is annually based and covers he period from 1996 o 008. The daa sources we use in his sudy are from Clarkson s Shipping Inelligence Nework, OECD saisics and World Developmen Indicaors from he World Bank Group. The basic models and consis of he following 11 variables as repored in Table : he volume of ordered new ships in each period (), represening he ship invesmen siuaion; oal world flee size (FS) and oal world orderbook (ORDERBOOK), implying he supply of shipping service; inernaional rade volume of expors in goods (TRADE), implying he demand for shipping service; ClarkSea Freigh Index (FREIGHT), indicaing he freigh level of shipping marke; and gross domesic produc per capia (GDPPC), serving as he conrol variable. We furher add newbuilding ship price (NBP), secondhand ship price (SHP), foreign direc invesmen in ransporaion (FDI), share of ranspor service in oal expor services (TS) o he basic model. Finally, dummy variables (CLUSTER) are included o reflec he cluser effec of he hree major shipbuilding counries (Japan, Souh Korea and China). The measuremens and sources of he variables are lised in Table. Hypoheses designed o es hese variables will be explained laer. Hypohesis Developmen

6 Xu, J. J., & Yip, T. L. (01). Ship invesmen a a sandsill? an analysis of shipbuilding aciviies and policies. Applied Economics Leers, 19(), Based on various research papers on invesmen behaviour, 8 hypoheses, covering capial sock, poenial earning, invesmen incenives and locaion advanage, are designed o capure he major deerminans of ship invesmen. We presen he hypoheses as below, explanaions will be made ogeher wih model developmen in he nex session. Capial sock hypohesis Hypohesis 1 Variables represening capial sock, such as flee size and exising orderbook are negaively relaed o ship invesmen. Poenial earning hypoheses Hypohesis Inernaional rade volume of expors is posiively relaed o ship invesmen. Hypohesis Freigh rae, represening he expecaion of he sae of he marke, is posiively relaed o ship invesmen. Hypohesis Newbuilding ship price, represening he expecaion of he changing coss in invesing new ships, is negaively relaed o ship invesmen. Hypohesis Secondhand ship price, represening expecaion-changing coss in invesing secondhand ships, is posiively relaed o ship invesmen. Invesmen incenives hypohesis Hypohesis 6 FDI in ransporaion is posiively relaed o ship invesmen. Locaion advanage hypoheses Hypohesis 7 Share of ranspor service in oal expor services is posiively relaed o ship invesmen. Hypohesis 8 Ineracions beween shipbuilding clusers and flee size, rade volume and freigh rae significanly conribue o he increase of ship invesmen.. ECONOMETRIC METHODOLOGY AND MODEL DEVELOPMENT 6

7 Xu, J. J., & Yip, T. L. (01). Ship invesmen a a sandsill? an analysis of shipbuilding aciviies and policies. Applied Economics Leers, 19(), The daa is colleced from 1 major shipbuilding counries over he period from 1996 o 008. The impac of each of he facors discussed in his sudy varies from shipowner o shipowner and from counry o counry, herefore, he fundamenal advanage of using panel daa se over a cross secion is ha i allows grea flexibiliy in modelling differences in behaviour across individuals over ime (William, 008). The basic framework for his discussion is a regression model of equaion (1): y i = x β + z α (1) i i i where x i represens he regressors, z i α represens he heerogeneiy, or individual effec, where z i conains a consan erm and a se of individual or group specific variable. We develop 9 models o es our hypoheses and repor hem in Table. All he 9 models are wih a considerably high adjused R squared value of around 0.7. The F saisics also show ha he independen variables (excep he variables NBP, SHP and FDI in he models, and 6) as a group explain a saisically significan share of variaion in he dependen variable. Hypoheses 1 o are esed hroughou he 9 models. The following model and model are basic models conaining variables in hypoheses 1 o. Hypohesis 1, concerning capial sock (flee size and orderbook), is confirmed by 7 ou of 9 models. We have separaely esed ORDERBOOK in model, and chose FS o represen capial sock in he oher 8 models. As can be observed in Table, boh FS and ORDERBOOK are negaively relaed o ship invesmen. This finding is in line wih our heoreical 7

8 Xu, J. J., & Yip, T. L. (01). Ship invesmen a a sandsill? an analysis of shipbuilding aciviies and policies. Applied Economics Leers, 19(), consideraion, since he higher he exising capial sock is, he lower he invesmen ne of replacemen will be. Hypohesis is confirmed by 8 ou of 9 models: inernaional rade volume of expors and ship invesmen are posiively relaed, given ha higher level of demand in ships requires more invesmen in he marke. Hypohesis is also acceped by 8 ou of 9 models, a higher freigh rae indicaes a prosperous shipping marke, which makes shipowners expec a high reurn in freigh marke, hus willing o inves new ships. Among he hree basic variables (FS, TRADE and FREIGHT), FREIGHT has an obviously higher significance level han he oher wo, his observaion ells us ha shipowners will be willing o inves new ships mos when hey confide in a profiable freigh marke. The supply of he marke (flee size) and he demand of he ships (rade volume) are also among heir consideraions, bu no as imporan as he freigh level facor. β β β β β β GDPPC () = FS + TRADE + FREIGHT + + β GDPPC = β0 + β1 1 + β ORDERBOOK + β TRADE + β FREIGHT () Model is designed o es hypohesis. Since a higher newbuilding ship price means higher coss in building new ships, we expec a negaive relaionship beween newbuilding ship price and ship invesmen. However, hypohesis is no confirmed according o model s resul, he variable NBP is no saisically significan as repored in Table. Newbuilding ship price is hus proved o be irrelevan o ship invesmen. + β GDPPC 6 = β0 + β1 1 + β FS + β TRADE + β FREIGHT + β NBP () 8

9 Xu, J. J., & Yip, T. L. (01). Ship invesmen a a sandsill? an analysis of shipbuilding aciviies and policies. Applied Economics Leers, 19(), Hypohesis, esed by model, canno be proved eiher. The variable SHP is no saisically significan o ship invesmen. The rejecion of hypoheses and suggess ha changing coss on building new ships does no affec shipowners decision of invesing new ships. One possible reason for his is ha he changing coss only ake a small proporion of he oal invesmen of building new ships, hence he shipowners care much more on he oal sunk cos and he fuure payoff of he ships. + β GDPPC 6 = β 0 + β1 1 + β FS + β TRADE + β FREIGHT + β SHP () The hypohesis relaing o he effec of FDI on ship invesmen, hypohesis 6, is esed hrough model 6. The resul of model 6, repored in Table, failed o show a posiive relaionship beween FDI volume and ship invesmen. The reasons are wofold, firs, he FDI volume depends a lo on he favourable fiscal policy and invesmen incenives of he hos counry, however, i has been proved by many sudies of no real relaionship beween invesmen incenives and he level of shipping invesmen (Boawrigh and Eaon, 197; Marlow, 1991); Second, I has been found ha service providers in ranspor or repair and mainenance markes aracs more FDI han indusrial manufacurers (Kind and Srandenes, 00), herefore, he higher FDI volume in he hos counry does no necessarily equal more invesmen on new ships. β GDPPC 6 = β 0 + β1 1 + β FS + β TRADE + β FREIGHT + β FDI + (6) 9

10 Xu, J. J., & Yip, T. L. (01). Ship invesmen a a sandsill? an analysis of shipbuilding aciviies and policies. Applied Economics Leers, 19(), Hypohesis 7 is confirmed by he resuls of models 7 o 10 in Table, ha is, he variable TS is posiive and highly significan o he variable. A large share of ranspor service in oal expor services shows he presence of long-sanding cusomers marke of shipping service, which shows he counry s cluser effec. This resul is herefore suppored by many sudies discussing abou he enormous cluser advanage o he shipping invesmen (Akselsen, 000, Tenold, 000; and Kind and Srandenes, 00). + β GDPPC 6 = β 0 + β1 1 + β FS + β TRADE + β FREIGHT + β TS (7) Models 8 o 10 furher es hypohesis 8, relaing o he ineracions beween shipbuilding clusers and flee size, rade volume and freigh rae, respecively. Japan, China and Souh Korea have been known as he major mariime clusers. The resuls in Table show ha he ineracions variables significanly conribue o he increase of ship invesmen, which can be inerpreed as: wih he same levels flee size, rade volume and freigh rae, he shipbuilding clusers, namely Japan, Souh Korea and China, sill arac more conracs of shipbuilding. This finding is in accordance wih he real siuaion: shipbuilding indusry has been idenified as a key and sraegic indusry in hese hree counries in recen years. This resul shows he grea imporance of he cluser effec o ship invesmen. = β 0 + β1 1 + β CLUSTER * FS + β GDPPC β FS + β TRADE + β FREIGHT + β TS (8) = β 0 + β1 1 + β CLUSTER * TRADE + β GDPPC β FS + β TRADE + β FREIGHT + β TS (9) 10

11 Xu, J. J., & Yip, T. L. (01). Ship invesmen a a sandsill? an analysis of shipbuilding aciviies and policies. Applied Economics Leers, 19(), = β 0 + β1 1 + β CLUSTER * FREIGHT + β GDPPC β FS + β TRADE + β FREIGHT + β TS (10). Conclusions In summary, our esimaions hrough pooled panel daa analysis show ha he hree basic variables, i.e. world flee size, world rade volume, and spo freigh rae, are imporan o he amoun of shipbuilding orders. This finding implies how imporan he shipowners confidence in freigh marke is when hey decide wheher o inves new ships. Shipbuilding price and secondhand ship price, reflecing he changing coss of shipbuilding, were proved o have no linkage o he amoun of shipbuilding orders. Moreover, he FDI volume in ransporaion in he hos counry does no necessarily lead o more invesmen on new ships. Wih regard o locaion facor and cluser effec, we found ha locaion advanage and cluser effec are of grea help o aracing more shipbuilding orders. Comparing he significance level of freigh level facor and oher deerminans of he amoun of shipbuilding orders, i was fel ha only if he freigh marke became prosperous again, we would by hen expec a prosperous shipbuilding marke. I has also been observed he srong cluser effec of Asian counries in he shipbuilding secor, namely Japan, Souh Korea and China. Wih he same levels of flee size, rade volume and freigh rae, shipowners will sill go o hese leading shipbuilding naions o build new ships. This shows a grea cluser advanage of hese hree counries for being a large consumers marke for mariime ransporaion. 11

12 Xu, J. J., & Yip, T. L. (01). Ship invesmen a a sandsill? an analysis of shipbuilding aciviies and policies. Applied Economics Leers, 19(), References Akselsen, C.C. (000) Locaion and Foreign Direc Invesmen-exemplified by Norwegian Shipping in Singapore. Repor 6/00, Foundaions for Research in Economics and Business Adminisraion, Bergen. Anderson, W.H.L. (1967) Business fixed invesmen: a marriage of fac and fancy, in, Deerminans of Invesmen Behaviour, (Ed.) R. Ferber, Naional Bureau of Economic Research, New York, 1-. Boawrigh, B.D. and Eaon, J.R. (197) The esimaion of invesmen funcions for manufacuring indusry in he Unied Kingdom. Economica, 9, Eisner, R. (196) Capial expendiures, profis, and he acceleraion principle, in Models of Income Deerminaion, Conference on Research in Income and Wealh, Princeon Universiy Press, Princeon, N.J, 8, Hennar, J.F. and Park, Y.R. (199) Locaion, governance and sraegic deerminans of Japanese manufacuring invesmen in he Unied Saes. Sraegic Managemen Journal, 1, Jorgenson, D.W. (196) Anicipaions and invesmen behaviour, in The Brookings Quarerly Economeric Model of he Unied Saes, (Eds.) J. S. Duesenberry, G. Fromm,L. R. Klein, and E. Kuh, Rand McNally, Chicago, -9. Jorgenson, D.W. (1967) The heory of invesmen behaviour, in Deerminans of Invesmen Behaviour, (Ed.) R. Ferber, Naional Bureau of Economic Research, New York, Jorgenson, D.W. and Sephenson, J.A. (1967) Invesmen behaviour in U.S. manufacuring , Economerica,, Jorgenson, D.W., Huner, J. and Nadiri, M.I. (1970) A comparison of alernaive economeric models of quarerly invesmen behaviour. Economerica, 8, Kind, H.J. and Srandenes, S.P (00) Causes and effecs of FDI by he Norwegian mariime indusry, Mariime Policy and Managemen, 9, -9. King, J. (1999) New direcions in shipbuilding policy, Marine Policy,, Marlow, P.B. (1991) Shipping and invesmen incenives: a rilogy Par. The effeciveness of invesmen incenives for shipping-he UK experience , Mariime Policy and Managemen, 18, Meyer, J. R. and Glauber, R.R. (196) Invesmen Decisions, Economic Forecasing, and Public Policy, Division of Research, Graduae School of Business Adminisraion, Harvard Universiy, Boson. Tenold, S. (000) Shipowning and Foreign Direc Invesmen, Working paper /00, Foundaions for Research in Economics and Business Adminisraion, Bergen. William, G.H. (008) Economeric Analysis (Fifh Ediion), Upper Saddle River, New Jersey

13 Xu, J. J., & Yip, T. L. (01). Ship invesmen a a sandsill? an analysis of shipbuilding aciviies and policies. Applied Economics Leers, 19(), Figure 1 Conracs in deadweigh onnage received by ship builders worldwide Source: Clarkson s Shipping Inelligence Nework Figure Disribuion of conracs in deadweigh onnage 100% 90% 80% 70% 60% 0% 0% 0% 0% 10% 0% Ohers Europe China Souh Korea Japan

14 Xu, J. J., & Yip, T. L. (01). Ship invesmen a a sandsill? an analysis of shipbuilding aciviies and policies. Applied Economics Leers, 19(), Table 1 Conracs by counry of build (008) Counry Deadweigh Tonnage Percenage Brazil 1,6 0.1% Denmark, % Finland 10, % France % Germany 68,0 0.8% Ialy 6, % Japan,976,9 1.6% Neherlands 1,70 0.1% Norway 6,00 0.0% P.R. China 61,78,9 6.7% Poland 8, % Souh Korea 69,11, % Spain 1, % Turkey 771, % USA 6, % Toal 9.78% Source: Clarkson s Shipping Inelligence Nework Table Lis of variables Variable Source Descripion SIN daa Conrac: Conracs By Area/Counry of Build (DWT) FS SIN daa Flee Size: Toal world flee in million (DWT) ORDERBOOK SIN daa Orderbook: Toal world Orderbook in million (DWT) TRADE OECD saisics Trade: Inernaional rade of expors in goods (billions of US dollars) FREIGHT SIN daa Freigh: ClarkSea Index GDPPC World Bank Gross Domesic Produc Per Capia FDI OECD Foreign Direc Invesmen: FDI inward flows in TS saisics ranspors (Millions of US dollars) World Bank Transporaion Service: Share of ransporaion service in oal expor services (%) SBP SIN daa Shipbuilding price: Shipbuilding Price Index SHP SIN daa Secondhand ship price: Toal Sales Volume (DWT) CLUSTER Cluser Effec (Japan, Souh Korea and China) Noe: SIN denoes Clarkson s Shipping Inelligence Nework. DWT denoes Deadweigh Tonnes 1

15 Xu, J. J., & Yip, T. L. (01). Ship invesmen a a sandsill? an analysis of shipbuilding aciviies and policies. Applied Economics Leers, 19(), Table Pooled OLS esimaions of he amoun of shipbuilding order conracs models Dependen variable: Explanaory Eq. () Eq. () Eq. () Eq. () Eq. (6) Eq. (7) Eq. (8) Eq. (9) Eq. (10) variable ** (1.70) 0.799** (1.96) 0.791** (1.609) 0.799** (1.7) 0.866** (1.18) 0.66** (10.910) 0.9** (6.16) 0.61** (6.9) 0.0** (6.06) FS -.90* (-.089) -.670* (-.16) -.798* (-.0) -6.1** (-.96) -.1* (-1.90) -.69 (-1.6) -.9* (-1.76) (-1.0) ORDERBOOK -1.10** (-.706) TRADE 0.11* (1.70) 0.1* (1.781) 0.1* (1.78) 0.0* (1.681) 0.10 (1.) 0.8** (.76) 0.09* (.6) 0.9* (.1) 0.09* (.60) FREIGHT 1.9** (.89) 1.6** (.8) 1.0* (1.88) (1.0) 1.7** (.106) 1.18** (.67) 1.108** (.809) 1.08** (.7) 1.068** (.697) SBP 0.9 (0.691) SHP (1.08) FDI (-0.07) TS 1.18** (.67) 0.80** (.816) 0.87** (.896) 0.8** (.789) CLUSTER x FS CLUSTER x TRADE CLUSTER x FREIGHT GDPPC -0.1* (-1.986) -0.08* (-1.9) -0.18* (-.01) -0.11* (-1.9) -0.7 (-1.96) -0.16** (-.88) 0.01** (.79) -0.1* (-1.81) 0.79** (.67) -0.6* (-1.98) 0.07** (.77) -0.1* (-1.80) 1

16 Xu, J. J., & Yip, T. L. (01). Ship invesmen a a sandsill? an analysis of shipbuilding aciviies and policies. Applied Economics Leers, 19(), Consan 18.* -6.0* 1.99* ** 16.10* * 1.86 (1.90) (-1.8) (.00) (1.6) (.797) (1.7) (1.7) (1.71) (1.78) Observaions Adjused R- squared F-saisic Noes: -saisics in parenheses ** indicaes significance a he 1% level * indicaes significance a he 10% level 16