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Vertically Integrated Unit Labour Cost And The Competition For Manufacturing Value Added In Europe

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  • Sascha Keil

    (Chemnitz University of Technology)

Abstract

Unit labour cost is considered being a decisive determinant of manufacturing exports and, thus, of industrial value added. This paper tests empirically to what degree manufacturing activities are exposed to international cost competition and whether the cost reliance decreases when a country specializes in industries, which are characterized by high innovative efforts and technological sophistication. For more precise sectoral estimates of the value added elasticity with respect to cost, unit labour cost is constructed as a vertically integrated metric, taking the input cost structure into account. The analysis focusses on 18 manufacturing sectors of 28 European countries over the period 1995-2018. The importance of competitive cost structures for manufacturing value added is broadly confirmed. The estimated cost elasticity differences across sectors tend to reflect the sectoral dependence on export sales and, thus, international competitive pressure. The highest elasticities belong to the production of automobiles, vehicles, pharmaceuticals and computers. These results are at odds with the common view according to which the cost elasticity decreases per se producing more advanced commodities.

Suggested Citation

  • Sascha Keil, 2022. "Vertically Integrated Unit Labour Cost And The Competition For Manufacturing Value Added In Europe," Departmental Working Papers of Economics - University 'Roma Tre' 0273, Department of Economics - University Roma Tre.
    • Handle: RePEc:rtr:wpaper:0273
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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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