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Unit Values, Unit Labor Costs and Trade Performance in Four Central European Countries

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Author Info

  • Gabor Bekes

    ()
    (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences)

  • Balazs Murakozy

    ()
    (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences)

  • Zsuzsa Munkacsi

    ()
    (European University Institute)

  • Gabor Oblath

    ()
    (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences)

Abstract

Our paper, relying on product and industry level data, analyses factors behind divergences in aggregate export price changes in four Central European countries, Poland, Hungary, Czech Republic and Slovakia. We focus on exports to Germany, their largest trading partner and observe the period 2000-2010. As our hypothesis is that divergence in changes may be explained by convergence in levels, we construct relative level indices of export unit values (UVs, as proxies of export prices) and unit labor costs (ULCs), based on the COMEXT and EU KLEMS databases, respectively. By merging the relative level indices with trade performance indicators (export volumes, market shares, extensive and intensive margins), we investigate the relation between UVs and ULCs, their changes, as well as their respective impact on trade performance. Our results suggest that (i) there is convergence in the four countries' export UV levels, (ii) changes in UVs were positively correlated with changes in ULCs, (iii) a higher UV increase was associated with lower growth in export volume, (iv) the level of ULC and that of labor productivity does not show convergence, but the level of labor costs and wage shares do. The results indicate that our approach helps understanding factors contributing to changes in UVs, as well as trade performance of countries. However, to reach more general results, the approach should be extended to more countries and markets.

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Bibliographic Info

Paper provided by Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences in its series IEHAS Discussion Papers with number 1329.

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Length: 79 pages
Date of creation: Sep 2013
Date of revision:
Handle: RePEc:has:discpr:1329

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Keywords: export price indices and unit values; unit labor costs; price level convergence; export performance;

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  1. Maria Paula Fontoura & Nuno Crespo, 2004. "Integration of CEECs into EU Markets: Structural Change and Convergence," Working Papers Department of Economics 2004/15, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  2. Amit Khandelwal, 2007. "The Long and Short (of) Quality Ladders," 2007 Meeting Papers 244, Society for Economic Dynamics.
  3. Ark, Bart van & Stuivenwold, Edwin & Ypma, Gerard, 2005. "Unit labour costs, productivity and international competitiveness," GGDC Research Memorandum 200580, Groningen Growth and Development Centre, University of Groningen.
  4. Antoine Berthou & Charlotte Emlinger, 2011. "The Trade Unit Values database," Economie Internationale, CEPII research center, issue 128, pages 97-118.
  5. Matthieu Bussière & Jarko Fidrmuc & Bernd Schnatz, 2005. "Trade Integration of Central and Eastern European Countries: Lessons from a Gravity Model," Working Papers 105, Oesterreichische Nationalbank (Austrian Central Bank).
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  7. repec:cii:cepiei:2011-q4-128 is not listed on IDEAS
  8. Robert C. Feenstra & John Romalis, 2012. "International Prices and Endogenous Quality," NBER Working Papers 18314, National Bureau of Economic Research, Inc.
  9. Inklaar, Robert & Timmer, Marcel P., 2008. "GGDC Productivity Level Database: International Comparisons of Output, Inputs and Productivity at the Industry Level," GGDC Research Memorandum GD-104, Groningen Growth and Development Centre, University of Groningen.
  10. Juan Carlos Hallak & Peter K. Schott, 2011. "Estimating Cross-Country Differences in Product Quality," The Quarterly Journal of Economics, Oxford University Press, vol. 126(1), pages 417-474.
  11. Peter K. Schott, 2004. "Across-product Versus Within-product Specialization in International Trade," The Quarterly Journal of Economics, MIT Press, vol. 119(2), pages 646-677, May.
  12. David Hummels & Peter J. Klenow, 2005. "The Variety and Quality of a Nation's Exports," American Economic Review, American Economic Association, vol. 95(3), pages 704-723, June.
  13. Mick Silver, 2007. "Do Unit Value Export, Import, and Terms of Trade Indices Represent or Misrepresent Price Indices?," IMF Working Papers 07/121, International Monetary Fund.
  14. Lionel Fontagné & Michael Freudenberg & Guillaume Gaulier, 2006. "A Systematic Decomposition of World Trade into Horizontal and Vertical IIT," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 142(3), pages 459-475, October.
  15. Aiginger, Karl, 1997. "The Use of Unit Values to Discriminate between Price and Quality Competition," Cambridge Journal of Economics, Oxford University Press, vol. 21(5), pages 571-92, September.
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