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