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Assessing cost competitiveness in European Union candidate countries: the case of the Republic of Moldova

Author

Listed:
  • Alexandru STRATAN

    (Academy of Economic Studies from Moldova,Chișinău,Republic of Moldova)

  • Alexandru FALA

    (Academy of Economic Studies from Moldova,Chișinău,Republic of Moldova)

  • Victoria FALA

    (National Institute of Economic Research of the Academy of Economic Studies from Moldova,Chișinău,Republic of Moldova)

Abstract

The Republic of Moldova signed an Association Agreement with the European Union (EU) in 2014, which officially entered into force in July 2016. By 2022, Moldova had been granted candidate status by the EU. To achieve full EU membership, candidate countries must demonstrate a functioning market economy and the ability to withstand competitive pressures and market forces within the EU. This paper aims to assess Moldova’s price and cost competitiveness as indicators of its capacity to compete within the EU market. To achieve this objective, we analyzed the evolution of the Real Effective Exchange Rate (REER) and Unit Labor Costs (ULC). The findings indicate that although the Republic of Moldova exhibits relatively low ULC levels compared to EU countries, the country’s slow real productivity growth, combined with the rapid increase in gross nominal wages, has led to a significant rise in ULC. Along with the real appreciation of the Moldovan leu, the fast growth of ULC threatens to undermine the country’s competitiveness. If left unaddressed, these trends could negatively impact Moldova's long-term economic growth. Furthermore, structural reforms aimed at boosting productivity, encouraging innovation, and enhancing labor market flexibility will be essential for maintaining and improving the country's external competitiveness.

Suggested Citation

  • Alexandru STRATAN & Alexandru FALA & Victoria FALA, 2024. "Assessing cost competitiveness in European Union candidate countries: the case of the Republic of Moldova," Romanian Journal of Economics, Institute of National Economy, vol. 59(2(68)), pages 25-35, December.
    • Handle: RePEc:ine:journl:v:59:y:2024:i:68:p:25-35
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    References listed on IDEAS

    as
    1. Peter Havlik, 2005. "Unit Labour Costs in the New EU Member States," wiiw Statistical Reports 1, The Vienna Institute for International Economic Studies, wiiw.
    2. Michael Peneder & Christian Rammer, 2018. "Measuring Competitiveness," WIFO Studies, WIFO, number 60838.
    3. Peneder, Michael & Rammer, Christian (ed.), 2018. "Measuring Competitiveness," ZEW Expertises, ZEW - Leibniz Centre for European Economic Research, number 181906.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Cost competitiveness; Real Effective Exchange Rate; Unit Labor Costs; Productivity;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • F15 - International Economics - - Trade - - - Economic Integration

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