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Competing for manufacturing value added: How strong is competitive cost pressure on sectoral level?

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  • Keil, Sascha

Abstract

Unit labour cost plays a pivotal role in shaping the regional distribution of manufacturing value added by influencing both export dynamics and business relocation decisions. Nonetheless, cost competitiveness is often regarded as playing a minor role in strategies promoting industrial upgrading. This perception stems from the belief that high-tech manufacturing sectors compete on the basis of quality rather than cost. This paper challenges this assumption and explores whether industries characterized by high levels of innovation and technological sophistication are indeed less reliant on competitive cost structures. In order to attain accurate estimations of sectoral value added elasticity in relation to cost, unit labour cost is conceptualised as a vertically integrated metric, accounting for the cost situation along the value chain. The analysis is centered on 18 manufacturing sectors across 28 European countries and covers the period from 1995 to 2018. The discrepancies in estimated cost elasticity across sectors appear to align more closely with their exposure to international markets and not with their degree of technological advancement. According to this sectoral-level evidence, cost competitiveness emerges as an essential prerequisite for industrial success.

Suggested Citation

  • Keil, Sascha, 2024. "Competing for manufacturing value added: How strong is competitive cost pressure on sectoral level?," Structural Change and Economic Dynamics, Elsevier, vol. 69(C), pages 197-212.
    • Handle: RePEc:eee:streco:v:69:y:2024:i:c:p:197-212
    DOI: 10.1016/j.strueco.2023.12.003
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    More about this item

    Keywords

    Vertically-integrated sectors; Competitiveness; Sectoral analysis;
    All these keywords.

    JEL classification:

    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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