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Exploring price and non-price determinants of trade flows in the largest euro-area countries

Claire Giordano and Francesco Zollino (francesco.zollino@bancaditalia.it)
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Francesco Zollino: Banca d'Italia

No 233, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: Since the mid-2000s standard price-competitiveness indicators for some European countries have been providing conflicting signals, particularly in Italy. Against a broad stability of the producer price (PPI)-based measure, the manufacturing unit labour cost (ULCM)-deflated indicator points to a major cumulated loss of competitiveness in Italy. We find that this discrepancy mostly reflects the divergence of ULCM and PPI trends in competitor countries while in Italy they have actually progressed hand in hand. Owing to the internationalization of production processes and to the subsequent fading representativeness of labour in respect of overall costs, seen to a different degree across countries, price-based indicators are arguably more appropriate than those based on ULCMs to assess external competitiveness and external performance. We provide empirical evidence that points in the same direction. In Italy ULC-based indicators play a less important role relative to price-deflated measures in explaining both export and import trends; this result does not hold for Germany and France. Moreover, a proxy for non-price competitiveness proves important in explaining Italian, German and, in particular, Spanish exports.

Keywords: price competitiveness; non-price competitiveness; unit labour costs; producer prices (search for similar items in EconPapers)
JEL-codes: F14 F62 (search for similar items in EconPapers)
Date: 2014-09
New Economics Papers: this item is included in nep-eec and nep-int
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Citations: View citations in EconPapers (5)

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https://www.bancaditalia.it/pubblicazioni/qef/2014-0233/QEF-233.pdf (application/pdf)

Related works:
Journal Article: Shedding Light on Price- and Non-price-competitiveness Determinants of Foreign Trade in the Four Largest Euro-area Countries (2016) Downloads
Working Paper: Exploring price and non-price determinants of trade flows in the largest euro-area countries (2015) Downloads
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