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International Competitiveness of the Mediterranean Quartet: A Heterogeneous-Product Approach

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  • Herman Z Bennett
  • Ziga Zarnic

Abstract

The real effective exchange rate (REER) is the most commonly used measure for assessing international competitiveness. This paper develops a methodology to estimate the REER that incorporates two distinctive elements that are not considered in the current literature and applies it to the Mediterranean quartet (MQ) of Greece, Italy, Portugal, and Spain, whose common pattern of real appreciation has created concern in policy and academic circles. The two elements that this paper adds to the existing literature are (1) product heterogeneity when identifying each country's international competitors and their weights, and (2) a comprehensive treatment of services exports. Our refined measure suggests a modest reduction in the observed REER gap between the MQ countries and the other euro area countries. In particular, considering product heterogeneity and services exports implies a lower real appreciation from 1998 to 2006 on the order of 2 to 3 percent for all MQ countries. These are difference-in-difference estimates relative to the results obtained for the rest of the euro area countries using the same methodology.

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Bibliographic Info

Article provided by Palgrave Macmillan in its journal IMF Staff Papers.

Volume (Year): 56 (2009)
Issue (Month): 4 (November)
Pages: 919-957

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Handle: RePEc:pal:imfstp:v:56:y:2009:i:4:p:919-957

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References

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  1. Thomas Hatzichronoglou, 1997. "Revision of the High-Technology Sector and Product Classification," OECD Science, Technology and Industry Working Papers 1997/2, OECD Publishing.
  2. Neary, J Peter, 2006. "Measuring Competitiveness," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5982, C.E.P.R. Discussion Papers.
  3. Pierre-Richard Agénor, 1995. "Competitiveness and External Trade Performance of the French Manufacturing Industry," IMF Working Papers, International Monetary Fund 95/137, International Monetary Fund.
  4. Valerie Cerra & Jarkko Soikkeli & Sweta C. Saxena, 2003. "How Competitive is Irish Manufacturing?," The Economic and Social Review, Economic and Social Studies, Economic and Social Studies, vol. 34(2), pages 173-193.
  5. Luca Buldorini & Stelios Makrydakis & Christian Thimann, 2002. "The effective exchange rates of the euro," Occasional Paper Series 02, European Central Bank.
  6. International Monetary Fund, 2005. "New Rates From New Weights," IMF Working Papers, International Monetary Fund 05/99, International Monetary Fund.
  7. Paul E. Jensen, 2006. "Trade, Entry Barriers, and Home Market Effects," Review of International Economics, Wiley Blackwell, Wiley Blackwell, vol. 14(1), pages 104-118, 02.
  8. Rauch, James E., 1999. "Networks versus markets in international trade," Journal of International Economics, Elsevier, Elsevier, vol. 48(1), pages 7-35, June.
  9. Mico Loretan, 2005. "Indexes of the foreign exchange value of the dollar," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), Board of Governors of the Federal Reserve System (U.S.), issue Win, pages 1-8.
  10. Menzie D. Chinn, 2005. "A Primer on Real Effective Exchange Rates: Determinants, Overvaluation, Trade Flows and Competitive Devaluation," NBER Working Papers 11521, National Bureau of Economic Research, Inc.
  11. Martine Durand & Jacques Simon & Colin Webb, 1992. "OECD's Indicators of International Trade and Competitiveness," OECD Economics Department Working Papers 120, OECD Publishing.
  12. Ian Marsh & Stephen Tokarick, 1996. "An assessment of three measures of competitiveness," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 132(4), pages 700-722, December.
  13. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 34(2), pages 647-668, June.
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Cited by:
  1. Ansgar Belke & Holger Zemanek & Gunther Schnabl, 2010. "Current Account Balances and Structural Adjustment in the Euro Area," Ruhr Economic Papers, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen 0176, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  2. Zemanek, Holger & Belke, Ansgar & Schnabl, Gunther, 2009. "Current Account Imbalances and Structural Adjustment in the Euro Area: How to Rebalance Competitiveness," IZA Policy Papers, Institute for the Study of Labor (IZA) 7, Institute for the Study of Labor (IZA).
  3. Fernando Alexandre & Pedro Bação & João Cerejeira & Miguel Portela, 2009. "Aggregate and sector-specific exchange rate indexes for the Portuguese economy," NIPE Working Papers, NIPE - Universidade do Minho 13/2009, NIPE - Universidade do Minho.
  4. Nikhil Patel & Zhi Wang & Shang-Jin Wei, 2014. "Global Value Chains and Effective Exchange Rates at the Country-Sector Level," NBER Working Papers 20236, National Bureau of Economic Research, Inc.
  5. Jules Leichter & Cristina Mocci & Stefania Pozzuoli, . "Measuring External Competitiveness:An Overview," Working Papers, Department of the Treasury, Ministry of the Economy and of Finance 2, Department of the Treasury, Ministry of the Economy and of Finance.

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