VERTICALLY INTEGRATED UNIT LABOUR COST AND THE COMPETITION FOR MANUFACTURING VALUE ADDED IN EUROPE

Sascha Keil ()
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Sascha Keil: Chemnitz University of Technology

No 273, Departmental Working Papers of Economics - University 'Roma Tre' from Department of Economics - University Roma Tre

Abstract: Unit labour cost is considered being a decisive determinant of manufacturing exports and, thus, of industrial value added. This paper tests empirically to what degree manufacturing activities are exposed to international cost competition and whether the cost reliance decreases when a country specializes in industries, which are characterized by high innovative efforts and technological sophistication. For more precise sectoral estimates of the value added elasticity with respect to cost, unit labour cost is constructed as a vertically integrated metric, taking the input cost structure into account. The analysis focusses on 18 manufacturing sectors of 28 European countries over the period 1995-2018. The importance of competitive cost structures for manufacturing value added is broadly confirmed. The estimated cost elasticity differences across sectors tend to reflect the sectoral dependence on export sales and, thus, international competitive pressure. The highest elasticities belong to the production of automobiles, vehicles, pharmaceuticals and computers. These results are at odds with the common view according to which the cost elasticity decreases per se producing more advanced commodities.

Keywords: vertically-integrated sectors; competitiveness; sectoral analysis (search for similar items in EconPapers)
JEL-codes: C67 F12 F41 L16 (search for similar items in EconPapers)
Pages: 37
Date: 2022-12
New Economics Papers: this item is included in nep-int
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Persistent link: https://EconPapers.repec.org/RePEc:rtr:wpaper:0273

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