A constant market share analysis of the euro area in the period 1994-2007

A country’s export market share and the changes in it over time are often used as measures of competitive capacity abroad. However, changes in market share can be influenced not only by actual movements in price- and non-price-competitiveness, but also by the composition of exports, whether in terms of geographical destination or of type of product. For example, if a country specialises in exports of goods (or towards areas) where demand is particularly buoyant, the market share will increase even though competitiveness does not improve. This article analyses the extent to which changes in the market shares of the euro area and its member countries between 1994 and 2007 have been determined by genuine changes in their competitiveness, or whether they are rather the outcome of the particular geographical and sectoral composition of their exports. For this purpose, we use the so-called “constant market share analysis” originally developed in Richardson (1971), which is described elsewhere in the article. The results obtained are compared with those for the United States and the United Kingdom. The analysis uses the United Nations Comtrade database, which has annual information on bilateral trade flows in nominal terms for the period 1993-2007. The one- and two-digit SITC classification is used for the sectoral breakdown, spanning 14 types of products (oil products and unclassifiable goods have been excluded) which, in turn, have been grouped into three categories, depending on their technological content: low, medium and high. At the same time, 14 regions have been considered as destinations. The article is structured as follows. Developments in world trade are first described having regard to sectors and importing regions, and this is compared with the composition of exports from the euro area and its member countries, the United States and the United Kingdom. Second, the methodology of the constant market share analysis is described. Third, the results of the constant market share analysis for the euro area and its member countries are reported and compared with those obtained for the United States and the United Kingdom. Finally, the main conclusions are drawn.