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Italy’s Price Competitiveness: An Empirical Assessment Through Export Elasticities

Walter Paternesi Meloni ()

Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, 2018, vol. 4, issue 3, 421-462

Abstract: Abstract Italy’s recent upward trend in the real effective exchange rate (REER) combined with a remarkable decreasing market share has instigated a lively economic debate on the relevance of price factors in shaping export performances. In parallel, concerns about Italy’s weak export competitiveness have been raised in connection to the Eurozone imbalance issue. In this framework, the aim of this paper is to investigate empirically the role of price competitiveness in determining Italy’s export flows, namely the sensitivity of exports to REER dynamics. For this purpose, we undertake an econometric investigation (a cointegration analysis from 1994 to 2014 to estimate jointly the long-run export elasticities to the foreign demand and the REER) conducted on the basis of five price and cost competitiveness indicators (i.e., alternative deflator-based REERs), also taking into account the role of non-price competitiveness factors. Moreover, we disentangle the export elasticities by clustering intra-Eurozone and global flows (both in values and in volumes). Besides assessing the remarkable importance of price competitiveness (the long-run export elasticity to export price-based REER is about − 1.3 for Eurozone flows and − 1.7 for global flows), some robustness tests confirm the absence of significant changes in the price elasticity of exports with regard to the two sub-periods pinpointed by the inception of the Euro. Furthermore, we conduct a sectoral study to determine whether some industries outperform others in terms of export elasticities. The sectoral breakdown indicates that manufacturing and machinery, which together account for 75% of Italian exports, show the highest REER elasticities, albeit with a sizeable impact of non-price factors (particularly for exports of manufactured goods towards the Eurozone). We conclude by drawing some implications from our findings for the current policy debates.

Keywords: Price competitiveness; Cointegration; Italy’s exports; REER; Trade elasticities; Eurozone imbalances (search for similar items in EconPapers)
JEL-codes: F14 F41 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:spr:italej:v:4:y:2018:i:3:d:10.1007_s40797-018-0075-5