Costs, knowledge and market structure: understanding the puzzle of international competitiveness with Greek export data

This is an analysis of the sources of international competitiveness with Greek export data for the period 1987--2007. The framework used in the study incorporates factors that do not only represent cost competitiveness but also shed light on the determinants of economic complexity. Economic complexity is the amount of knowledge capabilities embodied in exports that indicates -- as a source of comparative advantage -- the ability for product differentiation and product variety. The empirical analysis shows that industries benefit substantially from their own R&D activity but, owing to weak economic complexity in the country, there are no cross-industry knowledge spillovers (both at national and international level) that can benefit export activity. Greek exports were found to be sensitive to relative unit labour costs (RULC) but the most important export component of this index is relative labour productivity and not labour cost. Not all institutional arrangements have the same impact on exports, for example high trade union density might harm competitiveness but this factor is uncorrelated with R&D investment. In the view of these findings, Greece's route to international competitiveness should be primarily by improving its economic complexity, making sure that the country specialises in productive activities that enrich its knowledge capabilities as well as increase the potential of knowledge transfer.