Non‐Price Competitiveness Factors—A simple measure and implications for the five largest euro area countries

Abstract

This paper obtains a versatile measure of non-price competitiveness factors (NPCF) based on a simple international trade model. Trade frictions are reinterpreted as the NPCF conditions (inferior product quality, suboptimal geographical and industry specialisation of exports and any other limitations of the production and exporting channels) that inhibit trade. The set-up is applied to the five largest euro area economies for the period 2000-2018. Over this period, NPCF have improved significantly in the Netherlands and Spain, mildly in Italy and Germany and mildly worsened inFrance. In all countries, the improvement in NPCF has been more intense and sustained in the first half of the period and more unstable in the second half. The set-up is also applied at the product level, considering four types of products depending on the stage of processing, rendering results which are similar across product types and aligned with those for the whole economy. The results suggest that the conventional North-South divide in the euro area might not be entirely applicable regarding NPCF.

The results of internal devaluation policy as a crisis exit strategy: The case of Spain

“…These results evidence how little influence wage costs had on export price formation (indeed, an inverse link is actually detected) and the balance of trade, compared to greater dynamism in foreign markets, the sharp fall in oil prices, the appreciation of the euro and non-price competitiveness factors. This is in line with most of the empirical studies mentioned here which question the effectiveness of wage devaluation (Álvarez Peralta, 2014;Álvarez et al, 2019;Cárdenas et al, 2020;Fernández, 2014b;Gracia & Paz, 2013;Janssen, 2013;Mariolis et al, 2019;Rísquez, 2016;Villanueva et al, 2020;Villanueva & Cárdenas, 2021;Weisbrot & Ray, 2011;Xifré, 2021). It also coincides with the conclusions of a report by the McKinsey Global Institute (2019) in that only about 18 per cent of global goods trade is now driven by labour-cost arbitrage.…”

“…The main signs are as expected (the appreciation of the euro and increases in wage costs negatively affect the degree of coverage, while more dynamic external markets increase it). Thus, as predicted by other authors (Herrero & Rial, 2022; Xifré, 2021) they may be non‐price competitiveness factors that explain the improvement in Spain's balance of trade in the sub‐period in question (e.g. greater product quality, industry specialisation in exports, improvements in exporting channels and a gradual combination of mature and emergent markets as sales destinations).…”

“…In fact, internal devaluation policy seems to have led to an increase in profit margins. • Xifré (2021) shows how non-price competitiveness factors (inferior product quality, suboptimal geographical and industry specialisation of exports and other limitations in production and exporting channels) inhibit trade. In the case of the five largest euro area economies in 2000-2018 these factors seem to have improved significantly in the Netherlands and Spain, improved slightly in Italy and Germany and worsened slightly in France.…”

“…However, this had a limited effect on Spanish current account readjustment (33% of total) and only 2% of this correction can be attributed to the price effect, and more specifically to the import substitution effect. In fact, internal devaluation policy seems to have led to an increase in profit margins. Xifré (2021) shows how non‐price competitiveness factors (inferior product quality, suboptimal geographical and industry specialisation of exports and other limitations in production and exporting channels) inhibit trade. In the case of the five largest euro area economies in 2000–2018 these factors seem to have improved significantly in the Netherlands and Spain, improved slightly in Italy and Germany and worsened slightly in France. Cárdenas et al (2020) argue that labour market reforms and widespread wage reduction were not the drivers of Spanish economic recovery, but that recovery stems from the demand‐side of the economy.…”

The comparative advantages in the wooden furniture industry: does the export price matter?

“…At the same time, this result for WFI (a labour-intensive industry) has reversed expectations for many researchers such as Balassa (1979) and Han et al (2009). The study supports studies that argue that non-price factors are ahead of global competition (Athanasoglou and Bardaka, 2010;Algieri, 2015;Algieri et al, 2018;Marc and Patier, 2016;Benkovskis et al, 2020;Xifré, 2021). In the first part of the analysis, in which we emphasized the change in comparative advantages over the years, some low-income countries started to stand out in the competition.…”