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Evaluation of Non-price Competitiveness of Exports from Central, Eastern and Southeastern European Countries in the EU Market

  • Konstantins Benkovskis

    (Bank of Latvia)

  • Julia Woerz

We propose an export price indicator adjusted for non-price factors as a measure of a country's competitiveness. Based on the approach by Broda and Weinstein (2006) who adjust price developments for changes in varieties of imported products, we relax their assumption of unchanged quality over time and apply this index to export prices of the ten CESEE EU Member States which acceded in 2004 and 2007. The index is calculated using data from Comext at the highly disaggregated eight-digit CN product level. Our analysis spans the time period from 1999 to 2010, thus including the recent global recession in 2009. The results show that all CESEE10 countries experienced loss in price competitiveness, although much smaller than is usually suggested by the traditional CPI-based or ULC-based real effective exchange rate measures. Although relative export prices (unit values) increased stronger in CESEE10 countries as compared with their competitors, the average quality of their goods increased even more, thus fully compensating for the rise in prices. These improvements in non-price competitiveness were pronounced in all CESEE10 countries.

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Paper provided by Latvijas Banka in its series Working Papers with number 2012/01.

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Date of creation: 13 Apr 2012
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Handle: RePEc:ltv:wpaper:201201
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  1. Mohler, Lukas & Seitz, Michael, 2009. "The gains from variety in the European Union," MPRA Paper 17589, University Library of Munich, Germany.
  2. Juan Carlos Hallak & Peter K. Schott, 2008. "Estimating Cross-Country Differences in Product Quality," NBER Working Papers 13807, National Bureau of Economic Research, Inc.
  3. Leamer, Edward E, 1981. "Is It a Demand Curve, or Is It a Supply Curve? Partial Identification through Inequality Constraints," The Review of Economics and Statistics, MIT Press, vol. 63(3), pages 319-27, August.
  4. Christian Broda & David E. Weinstein, 2006. "Globalization and the Gains from Variety," The Quarterly Journal of Economics, MIT Press, vol. 121(2), pages 541-585, May.
  5. Feenstra, Robert C, 1994. "New Product Varieties and the Measurement of International Prices," American Economic Review, American Economic Association, vol. 84(1), pages 157-77, March.
  6. Konstantins Benkovskis & Julia Wörz, 2014. "How does taste and quality impact on import prices?," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 150(4), pages 665-691, November.
  7. Konstantins Benkovskis & Ramune Rimgailaite, 2011. "The quality and variety of exports from the new EU member states," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 19(4), pages 723-747, October.
  8. Justin Pierce & Peter Schott, 2009. "Concording U.S. Harmonized System Categories Over Time," Working Papers 09-11, Center for Economic Studies, U.S. Census Bureau.
  9. David Hummels & Peter J. Klenow, 2005. "The Variety and Quality of a Nation's Exports," American Economic Review, American Economic Association, vol. 95(3), pages 704-723, June.
  10. Sato, Kazuo, 1976. "The Ideal Log-Change Index Number," The Review of Economics and Statistics, MIT Press, vol. 58(2), pages 223-28, May.
  11. Chonira Aturupane & Simeon Djankov & Bernard Hoekman, 1999. "Horizontal and vertical intra-industry trade between Eastern Europe and the European union," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 135(1), pages 62-81, March.
  12. Uwe Dulleck & Neil Foster & Robert Stehrer & Julia Woerz, 2005. "Dimensions of quality upgrading," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 13(1), pages 51-76, 01.
  13. Ashoka Mody & Deniz Igan & Stefania Fabrizio, 2007. "The Dynamics of Product Quality and International Competitiveness," IMF Working Papers 07/97, International Monetary Fund.
  14. Michael A. Landesmann & Robert Stehrer, 2002. "Evolving Competitiveness of CEEC’s in an Enlarged Europe," Rivista di Politica Economica, SIPI Spa, vol. 92(1), pages 23-88, January-F.
  15. Gloria Sheu, 2014. "Price, Quality, and Variety: Measuring the Gains from Trade in Differentiated Products," American Economic Journal: Applied Economics, American Economic Association, vol. 6(4), pages 66-89, October.
  16. Flam, Harry & Helpman, Elhanan, 1987. "Vertical Product Differentiation and North-South Trade," American Economic Review, American Economic Association, vol. 77(5), pages 810-22, December.
  17. Mohler, Lukas & Seitz, Michael, 2010. "The Gains from Variety in the European Union," Discussion Papers in Economics 11477, University of Munich, Department of Economics.
  18. Blonigen, Bruce A. & Soderbery, Anson, 2010. "Measuring the benefits of foreign product variety with an accurate variety set," Journal of International Economics, Elsevier, vol. 82(2), pages 168-180, November.
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