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The role of price and cost competitiveness for intra- and extra-euro area trade of euro area countries

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  • Tkačevs, Olegs
  • Christodoulopoulou, Styliani
  • Bobeica, Elena

Abstract

This paper studies the importance of price and cost competitiveness for intra- and extra-euro area trade flows of euro area countries. A standard error correction framework shows that price competitiveness is a relatively more important driver of trade flows outside the euro area as compared to those within the monetary union, especially for exports, that tend to be more sensitive to relative prices than imports. We consider various measures of competitiveness and conclude that it is difficult to single out one that outperforms the others; based on an encompassing test, measures based on labour costs appear to contain relatively more information for trade flows, particularly for exports outside the euro area. The key policy implication is that to adjust competitiveness disequilibria within the monetary union, measures besides those aimed at price and cost adjustments should be pursued in the deficit countries, such as structural policies fostering non-price competitiveness. JEL Classification: F14, F15, F41

Suggested Citation

  • Tkačevs, Olegs & Christodoulopoulou, Styliani & Bobeica, Elena, 2016. "The role of price and cost competitiveness for intra- and extra-euro area trade of euro area countries," Working Paper Series 1941, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20161941
    Note: 2304852
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    Cited by:

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    2. Walter Paternesi Meloni, 2018. "Italy’s Price Competitiveness: An Empirical Assessment Through Export Elasticities," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 4(3), pages 421-462, November.
    3. Silvia Fabiani & Alberto Felettigh & Claire Giordano & Roberto Torrini, 2019. "Making room for new competitors. A comparative perspective on Italy’s exports in the euro-area market," Questioni di Economia e Finanza (Occasional Papers) 530, Bank of Italy, Economic Research and International Relations Area.
    4. K. Benkovskis & B. Bluhm & E. Bobeica & C. Osbat & S. Zeugner, 2020. "What drives export market shares? It depends! An empirical analysis using Bayesian model averaging," Empirical Economics, Springer, vol. 59(2), pages 817-869, August.
    5. Karsten Staehr, 2021. "Export performance and capacity pressures in Central and Eastern Europe," International Economics, CEPII research center, issue 165, pages 204-217.
    6. Jorge Salas, 2018. "Drivers of Spain’s Export Performance and the Role of the Labor Market Reforms," IMF Working Papers 2018/283, International Monetary Fund.
    7. Mr. Alvar Kangur, 2018. "Competitiveness and Wage Bargaining Reform in Italy," IMF Working Papers 2018/061, International Monetary Fund.

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    More about this item

    Keywords

    error correction model; intra- and extra-euro area trade; price and cost competitiveness;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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