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Patterns of Convergence (Divergence) in the Euro Area: Profitability Versus Cost and Price Indicators

Author

Listed:
  • Monica Amici

    (Banca d’Italia, DG Economics, Statistics and Research)

  • Emmanuele Bobbio

    (Banca d’Italia, DG Economics, Statistics and Research)

  • Roberto Torrini

    () (Banca d’Italia, DG Economics, Statistics and Research)

Abstract

We document that profitability—profit margins—has diverged in Euro-area countries since the introduction of the euro. Changes in profitability only partially overlap with changes in unit labour costs and producer prices, which are the indicators more commonly used in the literature to assess the competitiveness of euro-area member countries. We provide suggestive evidence that changes in profitability are correlated with changes in relative export performance, whereas the correlations between export and price and export and unit labour costs are unclear. We check the robustness of this correlation on a panel of 10 countries that adopted the euro between 1999 and 2001, and two-digit manufacturing sectors covering the period from 1999 to 2015, and conclude that profitability in the tradable sector is a useful indicator to assess the competiveness of euro-area countries. This is consistent with the recent international trade literature, according to which firms that export more are also more efficient or produce better products, as well as charging higher mark-ups.

Suggested Citation

  • Monica Amici & Emmanuele Bobbio & Roberto Torrini, 2018. "Patterns of Convergence (Divergence) in the Euro Area: Profitability Versus Cost and Price Indicators," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 4(3), pages 367-384, November.
  • Handle: RePEc:spr:italej:v:4:y:2018:i:3:d:10.1007_s40797-018-0076-4
    DOI: 10.1007/s40797-018-0076-4
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    Cited by:

    1. Ronny Mazzocchi & Roberto Tamborini, 2021. "Current account imbalances and the Euro Area. Controversies and policy lessons," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 38(1), pages 203-234, April.
    2. Ronny Mazzocchi & Roberto Tamborini, 2019. "Current Account Imbalances and the Euro Area: Alternative Views," EconPol Working Paper 27, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    3. Daniel Garcia-Macia, 2020. "Labor Costs and Corporate Investment in Italy," IMF Working Papers 2020/038, International Monetary Fund.

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    More about this item

    Keywords

    Euro area; Profit shares; Profit margins; Export shares; Unit labour costs;
    All these keywords.

    JEL classification:

    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • F10 - International Economics - - Trade - - - General

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