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Competitiveness at the Country-Sector Level: New Measures Based on Global Value Chains

Author

Listed:
  • Marczak, Martyna

    () (University of Hohenheim)

  • Beissinger, Thomas

    () (University of Hohenheim)

Abstract

We propose the so-called domestic "embodied unit labor costs" (EULC) at the country-sector level as a new cost-related basis for measures of international competitiveness. EULC take into account that a sector's labor costs constitute only a small share of its total cost which to a large extent consist of expenses for intermediate goods from other sectors. In line with a simple Leontief-type model, the proposed measure is constructed as a weighted average of unit labor costs of all domestic sectors contributing to the final goods of a specific sector. The contribution is expressed in value-added terms and takes global supply chains into account. We also show how EULC can be consistently calculated for sectoral aggregates such as the tradable goods sector. Based on EULC we propose the "embodied real effective exchange rate" (EREER) at the country-sector level as a new competitiveness indicator where the relevance of trading partners is quantified by an appropriate value-added measure. The chosen value-added concept replaces gross exports traditionally used as the weight basis in effective exchange rates. Using the World Input-Output Database (WIOD) we employ the proposed indicators to shed new light on changes in cost competitiveness at the sectoral level for Germany, and compare the empirical evidence with selected other euro area countries.

Suggested Citation

  • Marczak, Martyna & Beissinger, Thomas, 2018. "Competitiveness at the Country-Sector Level: New Measures Based on Global Value Chains," IZA Discussion Papers 11499, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp11499
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    References listed on IDEAS

    as
    1. Carlin, Wendy & Glyn, Andrew & Van Reenen, John, 2001. "Export Market Performance of OECD Countries: An Empirical Examination of the Role of Cost Competitiveness," Economic Journal, Royal Economic Society, vol. 111(468), pages 128-162, January.
    2. 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.
    3. Styliani Christodoulopoulou & Oļegs Tkačevs, 2016. "Measuring the effectiveness of cost and price competitiveness in external rebalancing of euro area countries: What do alternative HCIs tell us?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 43(3), pages 487-531, August.
    4. repec:aea:aejmac:v:9:y:2017:i:4:p:45-90 is not listed on IDEAS
    5. Ca' Zorzi, Michele & Schnatz, Bernd, 2007. "Explaining and forecasting euro area exports: which competitiveness indicator performs best?," Working Paper Series 833, European Central Bank.
    6. Tamim Bayoumi & Jaewoo Lee & Sarma Jayanthi, 2006. "New Rates from New Weights," IMF Staff Papers, Palgrave Macmillan, vol. 53(2), pages 1-4.
    7. Rudolfs Bems & Robert C. Johnson, 2017. "Demand for Value Added and Value-Added Exchange Rates," American Economic Journal: Macroeconomics, American Economic Association, vol. 9(4), pages 45-90, October.
    8. Tamim Bayoumi & Mika Saito & Jarkko Turunen, 2013. "Measuring Competitiveness; Trade in Goods or Tasks?," IMF Working Papers 13/100, International Monetary Fund.
    9. Luca Buldorini & Stelios Makrydakis & Christian Thimann, 2002. "The effective exchange rates of the euro," Occasional Paper Series 02, European Central Bank.
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    More about this item

    Keywords

    unit labor costs; real effective exchange rate; global supply chains; input-output analysis; sectoral analysis; international competitiveness; WIOD; Germany;

    JEL classification:

    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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