What Drives the Market Share Changes? Price versus Non-Price Factors

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 PriCe verSuS non-PriCe FaCtorS Konstantins Benkovskis and Julia WörzIn 2014 all ECB publications feature a motif taken from the €20 banknote.note: This Working 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. ABSTRACTThe paper proposes a theoretical framework for explaining gains and losses in export market shares by considering both price and non-price determinants. Starting from a demand-side model à la Armington (1969), we relax several restrictive assumptions to evaluate the contribution of unobservable changes in taste and quality, taking into account differences in elasticities of substitution across product markets. Using highly disaggregated trade data from UN Comtrade, our empirical analysis for the major world exporters (G7 and BRIC countries) reveals the dominant role of non-price factors in explaining the competitive gains of BRIC countries and concurrent decline in the G7's share of world exports. JEL classification C43, F12, F14, L15Keywords export market share decomposition, non-price competitiveness, real effective exchange rate 2 NON-TECHNICAL SUMMARYExport market shares and the real effective exchange rate (REER) are, perhaps, the two most popular indicators in order to assess a country's competitiveness on a macro level. Both indicators are extensively used in the policy analysis for obvious reasons: The calculation of changes in export market shares is easy and straightforward, while the REER, although being computationally more demanding, can serve as a comprehensive measure of a country's price and cost competitiveness, thus providing some insights about the causes of export performance.However, both indicators are also limited by serious drawbacks: Gains or losses in market shares only describe an outcome, while the driving forces behind underlying changes in competitiveness remain uncovered.The REER, while providing some information with respect to competitiveness, is at the same time limited by its narrowness, as only price factors are taken into account. In practice, the REER cannot fully explain changes in external competitiveness. This becomes especially apparent in the context of emerging countries, where strong export performance often goes hand in hand with an appreciation of the REER, thus suggesting a loss in price competitiveness. The disregard o...

Measuring the effectiveness of cost and price competitiveness in external rebalancing of euro area countries: What do alternative HCIs tell us?

“…the standard approach to modeling exports and imports is unable to fully capture their developments. This has been confirmed by many previous studies, pointing to the importance of non-price competitiveness in international trade (ECB (2005), Dieppe et al (2011), di Mauro andForster (2008), Benkovskis and Wörz (2014), Antras et al (2010), Altomonte et al (2013)). In addition Anderton and Tewolde (2011) found that a large part of imports developments during the upturn of global trade after the crisis might be ascribed to fiscal and monetary policy measures; these were implemented to boost trade and are not captured by standard demand variables.…”

“Made in China”: how does it affect our understanding of global market shares?

“…This enormous gain in world market shares is often ascribed to the fact that China still has relatively lower production costs, thus alluding to its price competitiveness. More recently, there is also evidence for improving quality of Chinese exporters (Pula and Santabarbara, 2011;Fu et al, 2012;Benkovskis and Wörz, 2014b). Another development that is often overlooked in such analyses is the fact that China has integrated deeper into global production networks (global value chains -GVCs) over the same period, thus the label "Made in China" also covers inputs produced by other countries.…”

“…The starting point is the decomposition of changes in gross export market shares recently developed by Benkovskis and Wörz (2014b). According to the empirical analysis of Benkovskis and Wörz (2014b), price factors fail to explain changes in gross market share dynamics.…”

“…The starting point is the decomposition of changes in gross export market shares recently developed by Benkovskis and Wörz (2014b). According to the empirical analysis of Benkovskis and Wörz (2014b), price factors fail to explain changes in gross market share dynamics. Thus, residual non-price factors (like quality and taste) play the dominant role in explaining the competitive gains of BRIC countries and the concurrent decline in the G7's share of world exports.…”

Assessment of competitiveness of the EU export in services

“…There are many factors that affect competitiveness, among them changes in productivity, skills and technological knowledge, the nature of public policies, the capacity to raise exports, price/cost and non-price/cost factors, etc. (de la Guardia, Molero, Valadez, 2005;Athanasoglou, Bardaka, 2010;Benkovskis, Wörz, 2017). For purposes of the research, we used a set of measures that describe four areas of competitiveness (Table 1).…”