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

Claire Giordano and Francesco Zollino

No 1789, Working Paper Series from European Central Bank

Abstract: Since 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. JEL Classification: F14, F62

Keywords: non-price competitiveness; price competitiveness; producer prices; unit labour costs (search for similar items in EconPapers)
Date: 2015-05
New Economics Papers: this item is included in nep-eec, nep-eur and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

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Related works:
Journal Article: Shedding Light on Price- and Non-price-competitiveness Determinants of Foreign Trade in the Four Largest Euro-area Countries (2016)
Working Paper: Exploring price and non-price determinants of trade flows in the largest euro-area countries (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20151789

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