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The response of non-price competitiveness and productivity due to changes in passed income gaps. Evidence from the OECD countries


  • Pedro André Cerqueira

    () (CeBER and Faculty of Economics of the University of Coimbra)

  • Micaela Antunes

    () (CeBER and Faculty of Economics of the University of Coimbra)

  • Elias Soukiazis

    () (CeBER and Faculty of Economics of the University of Coimbra)


Non-price competitiveness given by the ratio of the income elasticity of the demand for exports relatively to the income elasticity of the demand for imports is the key factor for measuring the competitiveness of an economy associated with the quality of the produced goods. This factor is essential in the export-led growth theory and the balance-of-payments constraint hypothesis advocated by Thirlwall´s Law (1979). Increasing returns to scale in the production process are also important for generating a cumulative causation growth circle and this factor has been earlier identified by Verdoorn (1949) and later by Kaldor (1966). According to Palley (2002) it is the non-price competiveness (through mostly changes in the income elasticity of the demand for imports) that adjusts to close the gap between the actual and the potential income. Setterfield (2012) on the other hand attributes higher importance to increasing returns to scale as the responsible for closing the income gap, implying changes in the Verdoorn coefficient. The aim of this paper is to shed light to this discussion bringing empirical evidence that shows how the non-price competitiveness (through the income elasticity of imports) and productivity (through increasing returns to scale) react with respect to previous income gaps. It is verified that both factors react significantly to changes in passed income gap but the reaction of the non-price competitiveness is more pronounced.

Suggested Citation

  • Pedro André Cerqueira & Micaela Antunes & Elias Soukiazis, 2017. "The response of non-price competitiveness and productivity due to changes in passed income gaps. Evidence from the OECD countries," CeBER Working Papers 2017-04, Centre for Business and Economics Research (CeBER), University of Coimbra.
  • Handle: RePEc:gmf:papers:2017-04

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    non-price competitiveness; increasing returns to scale; potential income; income gap; overlapping and non-overlapping regressions.;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • F10 - International Economics - - Trade - - - General
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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