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Patterns of convergence (divergence) in the euro area: profitability versus cost and price indicators

Monica Amici (), Emmanuele Bobbio () and Roberto Torrini ()
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Monica Amici: Bank of Italy
Emmanuele Bobbio: Bank of Italy

No 415, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: We analyse patterns of convergence (divergence) across euro-area countries in manufacturing since monetary union and find that not only costs, but also profitability have followed divergent paths. We further find that profitability developments only partially overlap with those of unit labour costs and producer prices, more extensively studied in the literature. Considering the largest countries, profitability in manufacturing in Germany and Spain has risen by comparison with non-tradables and with respect to France and Italy, where profit margins in manufacturing have declined and have lost ground with respect to the non-tradable sector. We show that these developments are correlated to the relative export performance of these countries. This correlation also holds in a two digit sector-level panel analysis, comprising all the euro-area countries that first entered the monetary union. This is consistent with the recent international trade literature, according to which successful exporting firms, which are more efficient or produce better products, also charge higher mark-ups. Turning to Italy, after a protracted decline both export shares and profit margins in manufacturing have improved in recent years, which is consistent with a recovery in external competitiveness.

Keywords: euro area; profit shares; profit margins; export shares; unit labour costs (search for similar items in EconPapers)
JEL-codes: D33 D4 J3 L1 F10 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec and nep-opm
Date: 2017-12
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Journal Article: Patterns of Convergence (Divergence) in the Euro Area: Profitability Versus Cost and Price Indicators (2018) Downloads
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