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An Export-Based Measure of Competitiveness

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Author Info

  • Martin Gächter

    ()
    (Oesterreichische Nationalbank, Foreign Research Division)

  • Hanno Lorenz

    ()
    (University of Vienna)

  • Paul Ramskogler

    ()
    (Oesterreichische Nationalbank, Foreign Research Division)

  • Maria Antoinette Silgoner

    ()
    (Oesterreichische Nationalbank)

Abstract

Unit labor cost (ULC) developments have been receiving increased attention from policymakers throughout the euro area, as adverse developments in price competitiveness are commonly seen as one of the causes of the ongoing sovereign debt crisis in the euro area. Yet empirical results are often ambiguous on the link between ULC developments and export performance. This widely examined empirical conundrum, often referred to as “Kaldor paradox,” naturally raises the question whether commonly used measures of ULC growth (such as total economy ULC) are a meaningful measure of mounting imbalances and persistent losses of trade competitiveness. Therefore, we propose a new ULC growth index that exploits disaggregated sectoral information and focuses on export-relevant sectors only. This trade-weighted ULC index is shown to have a substantially higher explanatory power for export growth than traditional ULC measures.

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File URL: http://www.oenb.at/dms/oenb/Publikationen/Volkswirtschaft/Monetary-Policy-and-the-Economy/2013/Monetary-Policy-and-the-Economy-Q2-13/chapters/mop_2013_q2_analyse4_tcm16-256832.pdf
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Bibliographic Info

Article provided by Oesterreichische Nationalbank (Austrian Central Bank) in its journal Monetary Policy & the Economy.

Volume (Year): (2013)
Issue (Month): 2 ()
Pages: 75–92

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Handle: RePEc:onb:oenbmp:y:2013:i:2:b:4

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Related research

Keywords: unit labor costs; competitiveness; export growth;

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References

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  1. Andrés Maroto Sanchez & Luis Rubalcaba Bermejo, 2006. "Competitiveness and the Kaldor Paradox: The case of Spanish Service Sector," Working Papers 06/06, Instituto Universitario de Análisis Económico y Social.
  2. Carlin, Wendy & Glyn, Andrew & Van Reenen, John, 2001. "Export Market Performance of OECD Countries: An Empirical Examination of the Role of Cost Competitiveness," Economic Journal, Royal Economic Society, vol. 111(468), pages 128-62, January.
  3. Ferrucci, Gianluigi & Jiménez-Rodríguez, Rebeca & Onorante, Luca, 2010. "Food price pass-through in the euro area The role of asymmetries and non-linearities," Working Paper Series 1168, European Central Bank.
  4. Zsolt Darvas, 2012. "Compositional effects on productivity, labour cost and export adjustments," Policy Contributions 730, Bruegel.
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