Trade in value added: Do we need new measures of competitiveness?

Kirsten Lommatzsch (kirsten.lommatzsch@bundesbank.de), Maria Silgoner and Paul Ramskogler

No 52/2016, Discussion Papers from Deutsche Bundesbank

Abstract: It has been argued that the increasing importance of global value chains necessitates a modification of conventional competitiveness measures. We compile a broad dataset including value added trade, gross exports and conventional and value added based real exchange rates. To sharply focus on external competitiveness, a new price competitiveness indicator is introduced, the TWULC (Trade Weighted Unit Labour Cost indicator). It weights sectorspecific cost trends according to sector shares in exports. Econometric tests for a panel of 38 countries show that the focus on value added trade generally improves the explanatory power of export equations. Value added exports' sensitivity towards real exchange rates is up to four times higher than that of gross exports. Real effective exchange rates focusing on exporting industries and on value added weights yield more robust results across the specifications, but do not systematically outperform the more conventional measures of price or cost competitiveness.

Keywords: competitiveness; external trade; labour costs (search for similar items in EconPapers)
JEL-codes: F14 J30 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-eec, nep-int, nep-opm and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Working Paper: Trade in value added: do we need new measures of competitiveness? (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdps:522016

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