Since the mid-2000s standard price-competitiveness indicators for euro-area countries have recently provided conflicting signals, particularly in Italy. The manufacturing unit labor cost (ULCM)-based indicator reports a major competitiveness loss in Italy. Owing to the internationalization of production processes and to the fading representativeness of labor on overall costs we argue that price-based measures are more appropriate than those based on ULCMs to assess external competitiveness and play a more important role in explaining export growth. Measuring non-price competitiveness and considering global value chains are also crucial to correctly identify the determinants of trade flows in the four largest euro-area countries.

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The paper is released in order to make the research of CompNet generally available, in preliminary form, to encourage comments and suggestions prior to final publication. The views expressed in the paper are the ones of the author(s) and do not necessarily reflect those of the ECB, the ESCB, and of other organisations associated with the Network. Terms of use: Documents in EconStor mayECB Working Paper 1981, November 2016 1 AbstractWe analyse the evolution of capital and labour (mis)allocation across firms in five euro-area countries (Belgium, France, Germany, Italy and Spain) and eight main sectors of the economy during the period 2002-2012. Three key stylized facts emerge. First, in all countries with the exception of Germany, capital allocation has worsened over time whereas the efficiency of labour reallocation has not changed significantly. Second, the observed increase in capital misallocation has been particularly severe in services as opposed to industry. Third, misallocation of both labour and capital dropped in all countries in 2009 and again for some country-sectors in 2011-2012. We next take stock of the possible drivers of input misallocation dynamics in a standard panel regression framework. Controlling for demand conditions and for the initial level of misallocation, heightened uncertainty, restrictive bank credit standards and tight product and labour market regulation are found to have boosted input misallocation, whereas the Great Recession per se exerted a cleansing effect. JEL codes: D24, D61, O47Keywords: total factor productivity, allocative efficiency, capital, labour, Great Recession ECB Working Paper 1981, November 2016 2 Non-technical summaryPoor total factor productivity (TFP) growth has been a key issue in the euro area over the last years and analysing its determinant is crucial from a policy perspective. At the sectorial level, TFP growth depends, almost equally, on technology improvements within firms (within-firm TFP growth) and on the efficiency with which production factors are (mis)-allocated across firms (between-firm TFP growth). The focus of this paper is on the latter and in particular on misallocation of labour and capital in eight macro-sectors (which include manufacturing and services) for five large euro-area countries (Belgium, France, Germany, Italy and Spain) during the period 2002-2012.Using the Hsieh and Klenow (2009) misallocation indicator, we uncover three stylized facts. First, in all countries, with the...

No abstract

The purpose of the Economic History Working Papers (Quaderni di Storia economica) is to promote the circulation of preliminary versions of working papers on growth, finance, money, institutions prepared within the Bank of Italy or presented at Bank seminars by external speakers with the aim of stimulating comments and suggestions. The present series substitutes the Historical Research papers-Quaderni dell'Ufficio Ricerche storiche. The views expressed in the articles are those of the authors and do not involve the responsibility of the Bank.

This paper should not be reported as representing the views of the European Central Bank (ECB). The views expressed are those of the authors and do not necessarily reflect those of the ECB.

No abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may / May 2015 AbstractSince the mid-2000s price-competitiveness indicators for some euro-area countries have been providing conflicting signals. Against a stability of the producer price (PPI)-based measure, the manufacturing unit labour cost (ULCM)-deflated indicator points to a major competitiveness loss in Italy; we argue that the discrepancy mostly reflects a divergence of ULCM and PPI trends in competitor countries. Owing to the fading representativeness of labour on overall costs, price-based indicators appear to be more appropriate than those based on ULCMs to assess external competitiveness. In Italy ULC-based indicators play a less relevant role relative to price-deflated measures in explaining exports; the opposite holds true for Germany and France, whereas in Spain exports are insensitive to prices. Non-price competitiveness proves important in explaining Italian, German and, in particular, Spanish exports. Imports react to price-competitiveness dynamics only in Italy; considering the participation in global value chains is useful to correctly identify import sensitivity to domestic and foreign demand. Non-technical summaryTrends in price competitiveness are usually proxied by the real effective exchange rate (REER), i.e. a weighted geometric average of bilateral exchange rates of a country's main trading partners deflated by a measure of relative inflation. However, the choice of the measure is open to much debate, since no standard indicator is theoretically optimal. According to the adopted deflator, we categorize the REER as price-based when relative consumer prices, producer prices of manufactured goods (PPIs) or GDP deflators are used, and ULC-based when unit labour costs in manufacturing (ULCM) or in the total economy (ULCT) are employed.In A focus on the single deflator trends in each country under investigation sheds light on the dispersion across the corresponding REERs. A cointegration analysis points to PPIs and ULCMs moving hand-in-hand in Italy in the long run, whereas the relationship is unstable in the case of France and recently has shown a structural break in the remaining two countries. In particular, the evidence of an increasing gap between PPI and ULCM in Germany, by far Italy's main trading partner, largely explains why the latter country, despite proving the only one in which PPI and ULCM co-move, records a dramatic divergence between its PPI-and ULCM-based REERs. One possible expla...

Italy's economic growth over its 150 years of unified history did not occur at a steady pace nor was it balanced across sectors. Relying on an entirely new input (labour and capital) database by us built and presented in the Appendix, together with new Banca d'Italia estimates of GDP by sector, this paper evaluates the different labour productivity growth trends within the Italian economy's sectors, as well as the contribution of structural change to productivity growth. Italy's performance is then set in an international context: a comparison of sectoral labour productivity growth rates and levels within a selected sample of countries (UK, US, Germany, Japan, India) allows us to better time, quantify and gauge the causes of Italy's catching-up process and subsequent more recent slowdown. Finally, the paper analyses the proximate sources of Italy's growth, relative to the other countries, in a standard growth accounting framework, in an attempt also to disentangle the contribution of both total factor productivity growth and capital deepening to the country's labour productivity dynamics.JEL classifications: N10, N30, O47, O57