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Industry-Level Competitiveness, Productivity, and Effective Exchange Rates in East Asia

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  • ITO Keiko
  • SHIMIZU Junko

Abstract

In this paper, we investigate export competitiveness based on unit labor costs (ULCs) and nominal effective exchange rates (NEERs) for Japan, China, and Korea for the 12 two-digit manufacturing industries for the period 2001-2009. Japan's ULCs either are relatively stable or declining in most industries, while that of Korea shows an upward trend in many industries, with the electrical and optical equipment industry being a major exception. China's ULCs are declining in most industries. Evaluating ULCs on a foreign currency basis, Japan's ULCs increased rapidly during the period of yen appreciation, suggesting that its cost reduction efforts were more than offset by the appreciation of the yen. The results of our empirical analysis suggest that both increases in ULCs and appreciation of the home currency reduce exports by raising the home country's relative prices. The negative impact of ULCs is largest for China, while it is negligible for Japan. However, the negative impact of NEERs is largest for Japan. Moreover, the negative impact of ULCs tends to be larger for machinery-related industries, suggesting that cost competitiveness is particularly important in these industries.

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  • ITO Keiko & SHIMIZU Junko, 2013. "Industry-Level Competitiveness, Productivity, and Effective Exchange Rates in East Asia," Discussion papers 13094, Research Institute of Economy, Trade and Industry (RIETI).
  • Handle: RePEc:eti:dpaper:13094
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    1. Menzie Chinn, 2006. "A Primer on Real Effective Exchange Rates: Determinants, Overvaluation, Trade Flows and Competitive Devaluation," Open Economies Review, Springer, vol. 17(1), pages 115-143, January.
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    3. THORBECKE, Willem & KATO Atsuyuki, 2012. "The Effect of Exchange Rate Changes on Germany's Exports," Discussion papers 12081, Research Institute of Economy, Trade and Industry (RIETI).
    4. Dekle, Robert & Fukao, Kyoji, 2009. "The Japan-U.S. Exchange Rate, Productivity, and the Competitiveness of Japanese Industries," CEI Working Paper Series 2008-25, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
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    6. Kiyotaka Sato & Junko Shimizu & Nagendra Shrestha & Shajuan Zhang, 2013. "Industry-specific Real Effective Exchange Rates and Export Price Competitiveness: The Cases of Japan, China, and Korea," Asian Economic Policy Review, Japan Center for Economic Research, vol. 8(2), pages 298-321, December.
    7. SATO Kiyotaka & SHIMIZU Junko & Nagendra SHRESTHA & Shajuan ZHANG, 2012. "Industry-specific Real Effective Exchange Rates for Japan," Discussion papers 12044, Research Institute of Economy, Trade and Industry (RIETI).
    8. Linda S. Goldberg, 2004. "Industry-specific exchange rates for the United States," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 1-16.
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    11. Rauch, James E., 1999. "Networks versus markets in international trade," Journal of International Economics, Elsevier, vol. 48(1), pages 7-35, June.
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    1. repec:eee:chieco:v:47:y:2018:i:c:p:219-233 is not listed on IDEAS
    2. Kiyotaka Sato & Junko Shimizu & Nagendra Shrestha & Shajuan Zhang, 2013. "Industry-specific Real Effective Exchange Rates and Export Price Competitiveness: The Cases of Japan, China, and Korea," Asian Economic Policy Review, Japan Center for Economic Research, vol. 8(2), pages 298-321, December.

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