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The Dynamics of Product Quality and International Competitiveness

Author

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  • Ashoka Mody
  • Deniz O Igan
  • Stefania Fabrizio

Abstract

Despite the appreciation of the exchange rate, the eight Central and Eastern European countries (the CEE-8) that entered the European Union in May 2004 have achieved a decade of impressive export growth, expanding significantly their shares of world markets. Does this mean that the real exchange rate is irrelevant? If not, what other factors compensated for the appreciation to explain the apparently strong competitiveness of these economies? And will these favorable factors continue to power export growth? This paper places in international context the achievements of the CEE-8 and helps more broadly to identify the determinants of international competitiveness. Building from data at the six-digit level of disaggregation, it shows that the CEE-8 made an impressive shift in product quality and in the technological intensity of exports, and that these shifts associated with the structural transformation were also associated with increased market share. The analysis strongly suggests that, when trading in international markets, countries benefit from higher product quality. However, while the structural transformation achieved was valuable in raising market shares, the easy gains from this process may be over.

Suggested Citation

  • Ashoka Mody & Deniz O Igan & Stefania Fabrizio, 2007. "The Dynamics of Product Quality and International Competitiveness," IMF Working Papers 07/97, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:07/97
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Katarzyna Baran, 2013. "The Determinants Of Economic Growth In Hungary, Poland, Slovakia And The Czech Republic In The Years 1995-2010," Equilibrium. Quarterly Journal of Economics and Economic Policy, Institute of Economic Research, vol. 8(3), pages 7-26, September.
    2. Davtyan Azat, 2014. "GMM Estimation and Shapiro-Francia Normality Test: A Case Study of CEE Economies," International Journal of Economic Sciences, University of Economics, Prague, vol. 2014(1), pages 12-26.
    3. 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.
    4. Xifré, Ramon, 2014. "The Competitiveness of the Spanish Economy -- A Bird's-eye View on the Four Largest Euro Area Economies," IESE Research Papers D/1088, IESE Business School.
    5. Veerle Miranda & Marialuz Moreno Badia & Ilke Van Beveren, 2012. "Globalization drives strategic product switching," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 148(1), pages 45-72, April.
    6. Jean-Louis Racine, 2011. "Harnessing Quality for Global Competitiveness in Eastern Europe and Central Asia," World Bank Publications, The World Bank, number 2305, September.
    7. repec:eee:ecolet:v:167:y:2018:i:c:p:90-96 is not listed on IDEAS
    8. Bacchiega, Emanuele & Minniti, Antonio, 2009. "The Quality-Income effect and the selection of location," Journal of Urban Economics, Elsevier, vol. 65(2), pages 209-215, March.
    9. Konstantīns Beņkovskis, 2012. "Competitiveness of Latvia's exporters," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 12(2), pages 17-45, December.
    10. Karsten Staehr, 2008. "The Maastricht Inflation Criterion and the New EU Members from Central and Eastern Europe," Bank of Estonia Working Papers 2008-04, Bank of Estonia, revised 30 Oct 2008.
    11. Klaus Regling & Servaas Deroose & Reinhard Felke & Paul Kutos, 2010. "The Euro After Its First Decade : Weathering the Financial Storm and Enlarging the Euro Area," Governance Working Papers 22817, East Asian Bureau of Economic Research.
    12. Konstantins Benkovskis & Julia Woerz, 2012. "Evaluation of Non-price Competitiveness of Exports from Central, Eastern and Southeastern European Countries in the EU Market," Working Papers 2012/01, Latvijas Banka.
    13. Eleonora Cavallaro & Piero Esposito & Alessia Matano & Marcella Mulino, 2013. "Technological Catching Up, Quality of Exports, and Competitiveness: A Sectoral Perspective," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 49(6), pages 4-21, November.
    14. Daniel Leigh & Stefania Fabrizio & Ashoka Mody, 2009. "The Second Transition; Eastern Europe in Perspective," IMF Working Papers 09/43, International Monetary Fund.
    15. Bogdan Lissovolik, 2008. "Trends in Italy’s Nonprice Competitiveness," IMF Working Papers 08/124, International Monetary Fund.
    16. Piero Esposito & Claudio Vicarelli, 2011. "Explaining the Performance of Italian Exports during the Crisis: (Medium) Quality Matters," Working Papers LuissLab 11954, Dipartimento di Economia e Finanza, LUISS Guido Carli.
    17. Bruha, Jan & Podpiera, Jirí, 2011. "The dynamics of economic convergence: The role of alternative investment decisions," Journal of Economic Dynamics and Control, Elsevier, vol. 35(7), pages 1032-1044, July.
    18. International Monetary Fund, 2012. "Assessing Competitiveness Using Industry Unit Labor Costs; An Application to Slovakia," IMF Working Papers 12/107, International Monetary Fund.
    19. Regling, Klaus & Deroose, Servaas & Felke, Reinhard & Kutos, Paul, 2010. "The Euro After Its First Decade: Weathering the Financial Storm and Enlarging the Euro Area," ADBI Working Papers 205, Asian Development Bank Institute.
    20. Gokhan Yilmaz & Rauf Gonenc, 2008. "How did the Turkish Industry Respond to Increased Competitive Pressures, 1998-2007?," Working Papers 0804, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    21. Monica Amici & Emmanuele Bobbio & Roberto Torrini, 2017. "Patterns of convergence (divergence) in the euro area: profitability versus cost and price indicators," Questioni di Economia e Finanza (Occasional Papers) 415, Bank of Italy, Economic Research and International Relations Area.
    22. Daniel Leigh & Abdul d Abiad & Ashoka Mody, 2007. "International Finance and Income Convergence; Europe is Different," IMF Working Papers 07/64, International Monetary Fund.

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