The effects of competitiveness on trade balance: The case of Southern Europe

Oscar Bajo-Rubio (oscar.bajo@uclm.es), Burcu Berke (burcuberke@nigde.edu.tr) and Vicente Esteve

Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), 2016, vol. 10, No 2016-30, 27 pages

Abstract: According to conventional wisdom, 'peripheral' Southern European members of the euro area (Greece, Italy, Portugal and Spain) suffer from a problem of competitiveness. Since their membership of the euro area renders devaluation impossible, adjustment should come through decreasing wages and prices in these countries, which, by improving the trade balance, should lead to a recovery of previous levels of employment and growth. In this paper, the authors estimate trade balance equations for the Southern European countries, both for total trade and for the trade performed with the European Union, taking three alternative measures of the real exchange rate, based on consumption price indices, export prices and unit labour costs, respectively. Their main conclusion is that demand seems to be more relevant than relative prices when explaining the evolution of the trade balance.

Keywords: trade balance; real exchange rate; competitiveness (search for similar items in EconPapers)
JEL-codes: F31 F41 F45 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (4)

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Working Paper: The effects of competitiveness on trade balance: The case of Southern Europe (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifweej:201630

DOI: 10.5018/economics-ejournal.ja.2016-30

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