Exploring Price and Non-Price Determinants of Trade Flows in the Largest Euro-Area Countries

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...

Labour, Profit and Housing Rent Shares in Italian GDP: Long-Run Trends and Recent Patterns

“…While the first shows a progressive loss of competitiveness in the Italian economy, especially compared with Germany, the second has remained fairly stable, following a pattern not so different from the German benchmark. Although the diverging trends of these two indicators can be explained in part by a declining weight of labour costs in total production costs (Brandolini et al, 2013;Giordano and Zollino, 2015b), this clearly points to a compression of profit margins, mostly explained by the disappointing performance of labour productivity (see De Nardis, 2015 for an analysis of the potential impact of German price competition on the Italian economy).…”

What drives export market shares? It depends! An empirical analysis using Bayesian model averaging

“…1 Also, it is not very clear empirically which of the various indicators relate better to trade outcomes (see, e.g. Ca' Zorzi and Schnatz 2007, Christodoulopoulou and Tkacevs (2016) and Giordano and Zollino (2015)).…”

Shedding Light on Price‐ and Non‐price‐competitiveness Determinants of Foreign Trade in the Four Largest Euro‐area Countries

“…E‐mail: francesco.zollino@bancaditalia.it. This paper is an updated and revised version of Giordano and Zollino (). The authors thank an anonymous referee, Uwe Böwer, Eugenio Gaiotti, Martin Myant, Maria Luigia Segnana, Stefano Siviero and Allan Webster for their insightful comments on previous versions of this paper.…”