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Measuring Institutional Competitiveness in Europe

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  • Stefan Huemer
  • Beatrice Scheubel
  • Florian Walch

Abstract

While there are many methods to measure the competitiveness of an economy, most of these concepts ignore the fact that competitiveness can change not only because of market processes such as wage negotiation but also because of political decision making. Governments that compete with others for factors of production face the incentive to adjust key policy variables such as tax rates to improve their competitive position. Disentangling market-induced and politics-induced changes in competitiveness are not easy, but strongly warranted given current discussions that some Economic and Monetary Union (EMU) Member States should improve their competitive position within the euro area by adjusting policy variables. Increasing country competitiveness is one of the key objectives currently discussed by policy makers in the context of creating an economic union in the euro area, to complement monetary union. We propose a new competitiveness index that captures the dimensions in which politics can influence competitiveness beyond factor price adjustments. Our index shows that the individual components of institutional competitiveness have developed heterogeneously among EMU Member States. To explain these divergent developments, the uneven integration within the European Union Single Market may play a role. (JEL codes: E02, E44, F15, H11, N44) Copyright The Author 2013. Published by Oxford University Press on behalf of Ifo Institute for Economic Research, Munich. All rights reserved. For permissions, please email: journals.permissions@oup.com, Oxford University Press.

Suggested Citation

  • Stefan Huemer & Beatrice Scheubel & Florian Walch, 2013. "Measuring Institutional Competitiveness in Europe," CESifo Economic Studies, CESifo, vol. 59(3), pages 576-608, September.
    • Handle: RePEc:oup:cesifo:v:59:y:2013:i:3:p:576-608
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    Cited by:

    1. Żmuda Małgorzata, 2017. "Towards a Taxonomy of International Competitiveness," Journal of Management and Business Administration. Central Europe, Sciendo, vol. 25(3), pages 97-116, September.
    2. Schönfelder, Nina & Wagner, Helmut, 2018. "Institutional convergence in Europe," Economics Discussion Papers 2018-53, Kiel Institute for the World Economy (IfW Kiel).
    3. Foders, Federico & Vogelsang, Manuel Molina, 2014. "Why is Germany's manufacturing industry so competitive?," Kiel Policy Brief 69, Kiel Institute for the World Economy (IfW Kiel).
    4. Schönfelder, Nina & Wagner, Helmut, 2019. "Institutional convergence in Europe," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 13, pages 1-23.
    5. João Amador & Ana Fernandes & Guida Nogueira, 2022. "The competitiveness of the Portuguese economy: A view from a composite indicator," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.

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    More about this item

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F15 - International Economics - - Trade - - - Economic Integration
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • N44 - Economic History - - Government, War, Law, International Relations, and Regulation - - - Europe: 1913-

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