Assessing the price and non-price competitiveness of the euro area

Countriesí export performance is broadly affected by three types of factors: relative prices, dynamism of export markets and non-price competitiveness. This section discusses the limits of traditional measures like the real effective exchange rate in capturing price competition and then focuses on the other determinants of competitiveness. We show that specialisation in markets with more dynamic demand can be relevant in the short run, but on average what matters most is the combination of price factors and the other non-price factors. To shed more light on non-price competition, we introduce an indicator of export quality, which defines the quality of euro area countriesí exports in relative terms vis ‡ vis their main competitors. We show that growth in export quality is indeed positively related to the export performance of euro area countries. This suggests that further work is needed to better understand and disentangle the drivers of competitiveness, but also that a successful competitiveness strategy needs to take into account both price and non-price aspects.