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Unit Values, Unit Labor Costs and Trade Performance in Four Central European Countries

Author

Listed:
  • Gabor Bekes

    () (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences)

  • Balazs Murakozy

    () (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences)

  • Zsuzsa Munkacsi

    () (European University Institute)

  • Gabor Oblath

    () (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences)

Abstract

Our paper, relying on product and industry level data, analyses factors behind divergences in aggregate export price changes in four Central European countries, Poland, Hungary, Czech Republic and Slovakia. We focus on exports to Germany, their largest trading partner and observe the period 2000-2010. As our hypothesis is that divergence in changes may be explained by convergence in levels, we construct relative level indices of export unit values (UVs, as proxies of export prices) and unit labor costs (ULCs), based on the COMEXT and EU KLEMS databases, respectively. By merging the relative level indices with trade performance indicators (export volumes, market shares, extensive and intensive margins), we investigate the relation between UVs and ULCs, their changes, as well as their respective impact on trade performance. Our results suggest that (i) there is convergence in the four countries' export UV levels, (ii) changes in UVs were positively correlated with changes in ULCs, (iii) a higher UV increase was associated with lower growth in export volume, (iv) the level of ULC and that of labor productivity does not show convergence, but the level of labor costs and wage shares do. The results indicate that our approach helps understanding factors contributing to changes in UVs, as well as trade performance of countries. However, to reach more general results, the approach should be extended to more countries and markets.

Suggested Citation

  • Gabor Bekes & Balazs Murakozy & Zsuzsa Munkacsi & Gabor Oblath, 2013. "Unit Values, Unit Labor Costs and Trade Performance in Four Central European Countries," IEHAS Discussion Papers 1329, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  • Handle: RePEc:has:discpr:1329
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    References listed on IDEAS

    as
    1. Lionel Fontagné & Michael Freudenberg & Guillaume Gaulier, 2006. "A Systematic Decomposition of World Trade into Horizontal and Vertical IIT," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 142(3), pages 459-475, October.
    2. Matthieu Bussière & Jarko Fidrmuc & Bernd Schnatz, 2005. "Trade Integration of Central and Eastern European Countries: Lessons from a Gravity Model," Working Papers 105, Oesterreichische Nationalbank (Austrian Central Bank).
    3. Feenstra, Robert C, 1994. "New Product Varieties and the Measurement of International Prices," American Economic Review, American Economic Association, vol. 84(1), pages 157-177, March.
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    5. Aiginger, Karl, 1997. "The Use of Unit Values to Discriminate between Price and Quality Competition," Cambridge Journal of Economics, Oxford University Press, vol. 21(5), pages 571-592, September.
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    8. Mick Silver, 2007. "Do Unit Value Export, Import, and Terms of Trade Indices Represent or Misrepresent Price Indices?," IMF Working Papers 07/121, International Monetary Fund.
    9. Juan Carlos Hallak & Peter K. Schott, 2011. "Estimating Cross-Country Differences in Product Quality," The Quarterly Journal of Economics, Oxford University Press, vol. 126(1), pages 417-474.
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    More about this item

    Keywords

    export price indices and unit values; unit labor costs; price level convergence; export performance;

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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