Trésor-Economics No. 212 - Trade potentials: Targeting foreign markets

DG Trésor has developed a tool to support decision-making and target buoyant markets for French exports. This tool is backed by a quantitative analysis of France's potential exports to its main partners in given sectors.

To assess trade potentials, a sector gravity model is used. Somewhat akin to Newton's theory of gravity, the model describes trade flows in terms of the economic and geographic distances between trading countries.

For a given year, the trade potential is the level of exports that would completely match the gravity model's prediction. This level provides a useful benchmark for analysing actual trade figures; it is not an export target.

This analysis reveals that French exports are in line, overall, with their potential level for France's main trading partners: Germany, the US, Spain, Italy and Belgium. However, exports are below their potential for certain countries such as the UK, the Netherlands, Algeria and India.

Trade potentials can help export policies target the markets that offer strong upside in the near future, in order to optimise effectiveness and maximise the economic benefits for France. Private-sector agents can also use this data to define their own export strategies.

For example, the tool suggests that there is significant untapped potential for French service exports to the major emerging countries; for exports of chemical products to Algeria, Turkey and Russia; and for exports of medical and precision optical instruments to India. In the long run, such targeting could strengthen French positions in the most buoyant sectors and countries identified.