An Aggregate View of Portuguese Exports and Competitiveness

Pedro Bação, António Portugal Duarte and Diogo Viveiros
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Diogo Viveiros: Banco de Portugal

No 2018-08, CeBER Working Papers from Centre for Business and Economics Research (CeBER), University of Coimbra

Abstract: The purpose of this paper is to study the relation between Portuguese exports of goods and a set of variables that theoretical models suggest as the main determinants of export behavior.Given that the exchange rate is one of the key variables identified by the theoretical models, we begin by reviewing the evolution of Portugal’s exchange rate policy between the 1977 and 1999, when Portugal joined the European Monetary Union. In addition, we discuss how the exchange rate policy has been related to the issue of competitiveness of Portuguese firms. We then present the theoretical models and proceed to an empirical analysis of their adequacy.The results of our empirical analysis indicate that the perfect competition model does not provide an acceptable representation of the behavior of Portugal's exports of goods. The results improve when the monopolistic competition model is estimated. The estimation of a modified version of the monopolistic competition model suggests that Portugal's exports of goods are very elastic with respect to demand and productivity, but very inelastic with respect to wages. Nevertheless, certain variables are not significant, which indicates that there are problems to be solved either in the theoretical framework or in the empirical approach.The estimates reported support the conclusion that to foster exports a focus on wage costs and on exchange rate fluctuations is probably inefficient or even misguided. Productivity and demand seem to be more important determinants of exports. If one believes in this conclusion, then views of competitiveness based on the importance of wage repression or exchange rate control must be revised.

Keywords: competitiveness; exchange rate; exports; productivity; wages. (search for similar items in EconPapers)
JEL-codes: D24 F11 F14 F31 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2018-09
New Economics Papers: this item is included in nep-cse, nep-eec and nep-int
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:gmf:papers:2018-08

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