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Assessing Competitiveness Using Industry Unit Labor Costs: an Application to Slovakia

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  • International Monetary Fund
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    Abstract

    Conceptual ambiguities and statistical weaknesses hamper the assessment of external competitiveness. The term competitiveness, while applied extensively, is often imprecisely defined, which can result in analytical errors and mistaken policy advice. Furthermore, aggregate statistical measures of competitiveness in terms of exchange rate misalignment can be biased. To address these issues, this paper makes two contributions. First, it clarifies the external competitiveness concept, highlighting the dichotomy between productivity-driven long-run growth and short-run deviations from the underlying growth trajectory, which can be related to exchange rate misalignment. Second, it develops a disaggregated statistical approach for examining competitiveness based on unit labor costs at the three digit industry level in a group of comparable countries. The case of Slovakia is used to illustrate these concepts, but the analytical insights have general application.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/107.

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    Length: 26
    Date of creation: 01 Apr 2012
    Date of revision:
    Handle: RePEc:imf:imfwpa:12/107

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    Related research

    Keywords: Current account deficits; Economic growth; Global competitiveness; Industrial sector; Labor costs; Productivity; Real effective exchange rates;

    This paper has been announced in the following NEP Reports:

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    1. Leon Podkaminer, 2010. "Real Convergence And Price Levels: Long-Term Tendencies Versus Short-Term Performance In The Enlarged European Union," Metroeconomica, Wiley Blackwell, vol. 61(4), pages 640-664, November.
    2. Jaewoo Lee & Jonathan David Ostry & Alessandro Prati & Luca Antonio Ricci & Gian-Maria Milesi-Ferretti, 2008. "Exchange Rate Assessments: CGER Methodologies," IMF Occasional Papers 261, International Monetary Fund.
    3. Bussière, Matthieu & Ca' Zorzi, Michele & Chudik, Alexander & Dieppe, Alistair, 2010. "Methodological advances in the assessment of equilibrium exchange rates," Working Paper Series 1151, European Central Bank.
    4. Ashoka Mody & Deniz Igan & Stefania Fabrizio, 2007. "The Dynamics of Product Quality and International Competitiveness," IMF Working Papers 07/97, International Monetary Fund.
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