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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.

Suggested Citation

  • Herman Z Bennett & Ziga Zarnic, 2009. "International Competitiveness of the Mediterranean Quartet: A Heterogeneous-Product Approach," IMF Staff Papers, Palgrave Macmillan, vol. 56(4), pages 919-957, November.
  • Handle: RePEc:pal:imfstp:v:56:y:2009:i:4:p:919-957
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    References listed on IDEAS

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    9. Ian Marsh & Stephen Tokarick, 1996. "An assessment of three measures of competitiveness," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 132(4), pages 700-722, December.
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    Cited by:

    1. Holger Zemanek & Ansgar Belke & Gunther Schnabl, 2010. "Current account balances and structural adjustment in the euro area," International Economics and Economic Policy, Springer, vol. 7(1), pages 83-127, May.
    2. Holger Zemanek & Ansgar Belke & Gunther Schnabl, 2009. "Current Account Imbalances and Structural Adjustment in the Euro Area: How to Rebalance Competitiveness," Discussion Papers of DIW Berlin 895, DIW Berlin, German Institute for Economic Research.
    3. Fernando Alexandre & Pedro Bação & João Cerejeira & Miguel Portela, 2009. "Aggregate and sector-specific exchange rate indexes for the Portuguese economy," Notas Económicas, Faculty of Economics, University of Coimbra, issue 30, pages 6-28, December.
    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. International Monetary Fund, 2008. "France, Greece, Italy, Portugal, And Spain; Competitiveness In The Southern Euro Area," IMF Staff Country Reports 08/145, International Monetary Fund.
    6. Ben Naceur, Sami & Bakardzhieva, Damyana & Kamar, Bassem, 2012. "Disaggregated Capital Flows and Developing Countries’ Competitiveness," World Development, Elsevier, vol. 40(2), pages 223-237.
    7. Jules Leichter & Cristina Mocci & Stefania Pozzuoli, "undated". "Measuring External Competitiveness:An Overview," Working Papers 2, Department of the Treasury, Ministry of the Economy and of Finance.

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