Assessing European competitiveness: the new CompNet microbased database P. Lopez-Garcia, F. di Mauro and the CompNet Task Force, ECB Working Paper Series No 1764, March 2015 –
Show/Hide Abstract Drawing from confidential firm-level balance sheets for 17 European countries (13 Euro-Area), the paper documents the newly expanded database of cross-country comparable competitiveness-related indicators built by the Competitiveness Research Network (CompNet). The new database provides information on the distribution of labour productivity, TFP, ULC or size of firms in detailed 2-digit industries but also within broad macro-sectors or considering the full economy. Most importantly, the expanded database includes detailed information on critical determinants of competitiveness such as the financial position of the firm, its exporting intensity, employment creation or price-cost margins. Both the distribution of all those variables, within each industry, but also their joint analysis with the productivity of the firm provides critical insights to both policy-makers and researchers regarding aggregate trends dynamics. The current database comprises 17 EU countries, with information for 56 industries, including both manufacturing and services, over the period 1995-2012. The paper aims at analysing the structure and characteristics of this novel database, pointing out a number of results that are relevant to study productivity developments and its drivers. For instance, by using covariances between productivity and employment the paper shows that the drop in employment which occurred during the recent crisis appears to have had “cleansing effects” on EU economies, as it seems to have accelerated resource reallocation towards the most productive firms, particularly in economies under stress. Lastly, this paper will be complemented by four forthcoming papers, each providing an in-depth description and methodological overview of each of the main groups of CompNet indicators (financial, trade-related, product and labour market).
2014
How do exporters react to changes in cost competitiveness? Stefaan Decramer, Catherine Fuss and Jozef Konings, ECB Working Paper Series No 1752, December 2014 –
Show/Hide Abstract Policy-making institutions such as the European Commission, the ECB and the OECD often use unit labor costs as a measure of international competitiveness. The goal of this paper is to examine how well this measure is related to international export performance at the firm level. To this end, we use Belgian firm-level data for the period 1999-2010 to analyze the impact of unit labor costs on exports. We use exports adjusted for their import content. We find a statistically significant negative effect of unit labor costs on export performance of firms with an estimated elasticity of the intensive margin of exports ranging between -0.2 and -0.4. This result is robust to various specifications, including firm, time and sector fixed effects and estimation approaches. We find that this elasticity varies between sectors and between firms, with firms that are more labor-intensive having a higher elasticity of exports with respect to unit labor costs. The micro data also enable us to analyze the impact of unit labor costs on the extensive margin. Our results show that higher unit labor costs reduce the probability of starting to export for non-exporters and increase the probability of exporters stopping. While our results show that unit labor costs have an impact on the intensive margin and extensive margin of firm-level exports, the effect is rather low, suggesting that pass-through of costs into prices is limited or that demand for exported products is not elastic. The latter is consistent with recent trade models emphasizing that not only relative costs, but also demand factors such as quality and taste matter for explaining firm-level exports.
Exports and capacity constraints - a smooth transition regression model for six euro area countries Ansgar Belke, Anne Oeking and Ralph Setzer, ECB Working Paper Series No 1740, November 2014 –
Show/Hide Abstract This paper argues that, under certain conditions, firms consider export activity as a substitute of serving domestic demand. Our econometric model for six euro area countries suggests domestic demand pressure and capacity constraint restrictions as additional variables of a properly specified export equation. As an innovation to the literature, we assess the empirical significance through the logistic and the exponential variant of the non-linear smooth transition regression model. We find that domestic demand developments are relevant for the short-run dynamics of exports in particular during more extreme stages of the business cycle. A strong substitutive relationship between domestic and foreign sales can most clearly be found for Spain, Portugal and Italy providing evidence of the importance of sunk costs and hysteresis in international trade.
Global value chains: surveying drivers and measures João Amador and Sónia Cabral, ECB Working Paper Series No 1739, October 2014 –
Show/Hide Abstract The production of most goods and services is nowadays vertically fragmented across different countries, as global value chains (GVCs) emerged as the current paradigm for the international organisation of production. This paper surveys part of the growing empirical literature on GVCs, starting by discussing the main driving forces of GVCs in recent decades. Next, it surveys the indicators used to map and measure this phenomenon, accounting for their different scopes and required datasets.
Measuring the effectiveness of cost and price competitiveness in external rebalancing of euro area countries: What do alternative HCIs tell us? Styliani Christodoulopoulou and Olegs Tkacevs, ECB Working Paper Series No 1736, September 2014 –
Show/Hide Abstract This study examines the marginal effects of traditional determinants of exports and imports with a focus on the role of price competitiveness in restoring external balances. It is a first attempt to compare marginal effects of various harmonised competitiveness indicators (HCIs) on both exports and imports of both goods and services across individual euro area countries. We find evidence that HCIs based on broader cost and price measures have a larger marginal effect (with some exceptions) on exports of goods. Exports of services are sensitive to HCIs in big euro area countries and Slovakia, where exports of services are also found more sensitive to competitiveness indicators based on broader price measures. Imports of goods and imports of services are quite insensitive to changes in relative prices. Finally, in some cases measures of fit indicate that a large unexplained residual part is present, implying that other non-price related factors might play an important role in driving foreign trade.
European competitiveness - A semiparametric stochastic metafrontier analysis at the firm level Marijn Verschelde, Michel Dumont, Glenn Rayp and Bruno Merlevede, ECB Working Paper Series No 1701, July 2014 –
Show/Hide Abstract In this paper a semiparametric stochastic meta frontier approach is used to obtain insight into firm-level competitiveness in Europe. We differ from standard TFP studies at the firm level as we simultaneously allow for inefficiency, noise and do not impose a functional form on the input-output relation. Using AMADEUS firm-level data covering 10 manufacturing sectors from seven EU15 countries, (i) we document substantial, persistent differences in competitiveness (with Belgium and Germany as benchmark countries and Spain lagging behind) and a wide technology gap, (ii) we confirm the absence of convergence in TFP between the seven selected countries, (iii)we confirm that the technology gap is more pronounced for smaller firms, (iv) we highlight the role of post-entry growth for competitiveness.
Intermediate inputs, external rebalancing and relative price adjustment Rudolfs Bems, ECB Working Paper Series No 1699, July 2014 –
Show/Hide Abstract This paper proposes a methodology for tracing out the effect of intermediate inputs, including 'processing trade', on the link between external rebalancing and relative price adjustment.We find that neglect of inputs distorts parameterization of the traditional multi-sector macro model. Distortions affect the link between external rebalancing and relative price through several opposing channels. (1) Mismeasured imported inputs exaggerate economic openness and understate the price response to rebalancing. (2) Mismeasured domestic inputs increase cross-sectoral asymmetry in openness, leading to an overstated price response. (3) Mismeasured price elasticities tend to overstate the price response. (4) Distortions in model parameters interact to generate a sizable further understatement of the price response. Quantitative results show that the identified channels can each be significant in economic terms.
Collateral imbalances in intra-european trade? Accounting for the difference between gross and value added trade balances Arne J. Nagengast and Robert Stehrer, ECB Working Paper Series No 1695, July 2014 –
Show/Hide Abstract One of the main stylised facts that has emerged from the recent literature on global value chains is that bilateral trade imbalances in gross terms can differ substantially from those measured in value added terms. However, the factors underlying the extent and sign of the differences between the two measures have so far not been investigated. Here, we propose a novel decomposition of bilateral gross trade balances that accounts for the differences between gross and value added concepts. The bilateral analysis contributes conceptually to the literature on double counting in trade by identifying the tradeflow in which value added is actually recorded for the first time in international trade statistics. We apply our decomposition framework to the development of intra-EU27 trade balances from 1995-2011 and show that a growing share of intra-EU bilateral trade balances is due to demand in countries other than the two direct trading partners.
Crisis-proof services: Why trade in services did not suffer during the 2008-2009 collapse Andrea Ariu, ECB Working Paper Series No 1691, July 2014 –
Show/Hide Abstract During the 2008-2009 crisis trade in goods experienced the deepest decline ever recorded. Surprisingly, trade in services came through the crisis unscathed and some service categories carelessly stuck to their growth paths. Using firm-product-destination exports for Belgium, we show that the particular resilience of servicesis explained by a significantly lower elasticity to demand in export markets. More specifically, services exports tend to decline on average 5% less than exports of goods following a 1% decrease in GDP growth in destination countries. Most of this effect is accounted for by business services, it is more pronounced with respect to durables than to consumable products and it is stronger for OECD exports than for non-OECD. In terms of economic magnitude, if goods had the same elasticity to GDP growth of services, they would have decreased of about half. Conversely, if services had the same elasticity of goods, their fall would have been more than thrice as much.
Euro area external imbalances and the burden of adjustment Filippo di Mauro and Francesco Pappadà, ECB Working Paper Series No 1681, May 2014 –
Show/Hide Abstract The objective of this paper is to explore the consequences of the correction of Euro area trade imbalances on real exchange rates. This analysis requires one additional dimension with respect to the standard Global Imbalances framework à la Obstfeld and Rogo(2005),since the adjustment takes place within and outside the Euro area.Both types of adjustments are analyzed in a three-country general equilibrium model with a tradable and a non-tradable sectors,and heterogeneous firms built upon Pappadà(2011).ECB(CompNet)data are used to measure the differences in firm size and productivity dispersion across Euro area countries.With respect to the surplus country(Germany),countries running a trade de cit(Spain,Italy)are characterised by a productivity distribution with a lower mean and a less fat right tail.This increases the relative price movement associated with the external adjustment because of the limited role played by the extensive margin.We show that the real exchange rate movements are underestimated when the cross-country differences in terms of productivity distributions are neglected.
Verti-zontal differentiation in export markets Francesco Di Comite, Jacques-François Thisse and Hylke Vandenbussche, ECB Working Paper Series No 1680, May 2014 –
Show/Hide Abstract Many trade models of monopolistic competition identify cost efficiency as the main determinant of firm performance in export markets. To date, the analysis of demand factors has received much less attention. We propose a new model where consumer preferences are asymmetric across varieties and heterogeneous across countries. The model generates new predictions and allows for an identification of horizontal differentiation (taste) clearly distinguished from vertical differentiation (quality). Data patterns observed in Belgian firm-product level exports by destination are congruent with the predictions and seem to warrant a richer modelling of consumer demand.
Mapping Global Value Chains Koen De Backer and Sébastien Miroudot, ECB Working Paper Series No 1677, May 2014 –
Show/Hide Abstract World trade and production are increasingly structured around “global value chains” (GVCs). The last years have witnessed a growing number of case studies describing at the product level how production is internationally fragmented, but there is little evidence at the aggregate level on the prevalence of GVCs. The main objective of this paper is to provide for more and better evidence allowing to examine the position of countries within international production networks. We propose a number of indicators that give a more accurate picture of the integration and position of countries in GVCs, as well as a more detailed assessment of the value chain in four broad industries: agriculture and food products, motor vehicles, electronics and business services.
Identifying hubs and spokes in global supply chains using redirected trade in value added Arjan Lejour, Hugo Rojas-Romagosa and Paul Veenendaa, ECB Working Paper Series No 1670, April 2014 –
Show/Hide Abstract The increasing importance of global supply chains has prompted the use of analytical tools based on trade in value added – instead of traditional measures in gross value. We use this analytical framework to develop indicators that identify hubs and spokes in international supply chains. Using these indicators and the Global Trade Analysis Project (GTAP) databases we identify the importance of redirected value added trade and the hub and spoke relationships at the aggregate level and for specific highly integrated industries.
External and macroeconomic adjustment in the larger euro area countries Elena Angelini, Michele Ca’ Zorzi and Katrin Forster, ECB Working Paper Series No 1647, March 2014 –
Show/Hide Abstract A balanced current account in the euro area has disguised sizeable net lending imbalances at the country level, exposing the common currency area to severe pressures during the financial crisis. The key contribution of this paper is to evaluate the adjustment process through the lenses ofthe New Multi Country Model at the country and sectoral level. We find that shocks to the external, fiscal and monetary environment help explain, to a large degree, the sizable current account adjustment and rise in unemployment in Spain. The model also suggests that a recovery in wage competitiveness helps to reduce external deficits at the cost of higher net borrowing by households. The stimulus effects on aggregate demand, via the interest rate response of the common monetary authority and the competitiveness channel, are present but not overly large,as the rebound in economic activity depends mainly on global demand, supportive monetary policy, business and consumer confidence.
What drives the market share changes? price versus non-price factors Konstantins Benkovskis and Julia Wörz, ECB Working Paper Series No 1640, February 2014 –
Show/Hide Abstract The paper proposes a theoretical framework for explaining gains and losses in export market shares by considering both price and non-price determinants. Starting from a demand-side model à la Armington (1969), we relax several restrictive assumptions to evaluate the contribution of unobservable changes in taste and quality, taking into account differences in elasticities of substitution across product markets. Using highly disaggregated trade data from UN Comtrade, our empirical analysis for the major world exporters (G7 and BRIC countries) reveals the dominant role of non-price factors in explaining the competitive gains of BRIC countries and concurrent decline in the G7’s share of world exports.
Competition in the Portuguese economy: estimated price-cost margins under imperfect labour markets João Amador and Ana Cristina Soares, ECB Working Paper Series No 1751, December 2014 –
Show/Hide Abstract This article estimates price-cost margins for the Portuguese markets in a context of imperfect competition in the labour market. The database used includes virtually the universe of Portuguese firms for the period 2005-2009. The results strongly reject the hypothesis of perfect competition in both labour and product markets. Estimated price-cost margins are very heterogeneous across markets and the average for the overall economy ranges between 25 and 28 per cent, depending on the variables used to weight each market. In addition, the tradable sector presents a lower price-cost margin than the non-tradable sector. According to the methodology used, workers’ bargaining power in the Portuguese economy is approximately 13 per cent,without a clear distinction between tradable and non-tradable sectors. Finally, workers’ bargaining power ishighly and positively correlated with price-cost margins across markets.
Enterprise productivity: a three-speed Europe Andrea Dall’Olio, Mariana Iootty, Naoto Kanehira and Federica Saliola, ECB Working Paper Series No 1748, December 2014 –
Show/Hide Abstract Between 2003 and 2008 productivity patterns diverged between the fast growing, newest members of the European Union and the slower paced, elder ones – as would be expected. However, there are also striking divergences within the latter group, with productivity in Southern Europe going into reverse. This paper analyzes which factors - whether country-level or firm-specific ones - contributed more to the emergence of a three-speed Europe. The analysis combines firm-level data with country-level inputs. Among the newest members of the European Union, country characteristics including the stock of inward foreign direct investment, the availability of credit, and the quality of the business environment and the skills of the workforce prove to be the most important drivers. Firm specific characteristics are shown to matter as well, notably that small firms and firms which are part of international groups realize more productivity gains than larger domestic competitors. Among the more advanced member countries, firm-level characteristics are most important, with larger firms and firms with international affiliation demonstrating faster productivity gains. Country specific factors, such as the quality of the business environment, the size of outward FDI and the skills of the workforce, do matter as well. These explanations of diverging productivity patterns suggest that European Union nations can realize significant benefits from low cost policy interventions such as improving business regulations and encouraging firms’ internationalization.
A consistent set of multilateral productivity approach-based indicators of price competitiveness Christoph Fischer and Oliver Hossfeld, ECB Working Paper Series No 1706, August 2014 –
Show/Hide Abstract We propose a novel, multilaterally consistent productivity approach-based indicator to assess the international price competitiveness of 57 industrialized and emerging economies. It is designed to be a useful assessment tool for monetary policy authorities and, thereby, differs from previously proposed indicators, which are hardly applicable on a day-to-day basis. Special attention has been paid to an appropriate selection of price and productivity data in levels as opposed to indices, and to the treatment of country fixed effects when interpreting currency misalignments. The discussion of the results focuses on the larger economies of the sample. At the current juncture, and in contrast to the prevailing view, we find US price competitiveness to be above and China’s price competitiveness to be below its derived benchmark.
Are foreign-owned firms differnt? Comparison of employment volatility and elasticity of labour demand Jaanika Meriküll and Tairi Rõõm, ECB Working Paper Series No 1704, August 2014 –
Show/Hide Abstract This paper analyses differences in employment volatility in foreign-owned and domestic companies using firm-level data from 24 European countries. The presence of foreign-owned companies may lead to higher employment volatility because subsidiaries of multinational companies react more sensitively to changes in labour demand in host countries or because they are more exposed to external shocks. We assess the conditional em-ployment volatility of firms with foreign and domestic owners us-ing propensity score matching and find that it is higher in foreign-owned firms in about half of the countries that our study covers. In addition, we explore how and why labour demand elasticity differs between these two groups of companies. Our estimations indicate that labour demand can be either more or less elastic in subsidiaries of foreign-owned multinationals than in domestic en-terprises, depending on the institutional environments of their home and host countries.
The euro plus pact: cost competitiveness and external capital flows in the EU countries Hubert Gabrisch and Karsten Staehr, ECB Working Paper Series No 1650, March 2014 –
Show/Hide Abstract The Euro Plus Pact was approved by 23 EU countries in March 2011 and came into force shortly afterwards. The Pact stipulates a range of quantitative targets meant to strengthen cost competitiveness with the aim of preventing the accumulation of external financial imbalances. This paper uses Granger causality tests and vector autoregressive models to assess the short-term linkages between changes in the relative unit labour cost and changes in the current account balance. The sample consists of annual data for 27 EU countries for the period 1995-2012. The main finding is that changes in the current account balance precedes changes in relative unit labour costs, while there is no discernable effect in the opposite direction. The divergence in unit labour costs between the countries in Northern Europe and the countries in Southern and Eastern Europe may thus partly be the result of capital flows from the core of Europe to the periphery prior to the global financial crisis. The results also suggest that the measures in the Euro Plus Pact to restrain the growth of unit labour costs may not affect the current account balance in the short term.
Micro-based evidence of EU competitiveness: the CompNet database CompNet Task Force, ECB Working Paper Series No 1634, February 2014 –
Show/Hide Abstract Drawing from confidential firm-level balance sheets in 11 European countries, the paper presents a novel sectoral database of comparable productivity indicators built by members of the Competitiveness Research Network (CompNet) using a newly developed research infrastructure. Beyond aggregate information available from industry statistics of Eurostat or EU KLEMS, the paper provides information on the distribution of firms across several dimensions related to competitiveness, e.g. productivity and size. The database comprises so far 11 countries, with information for 58 sectors over the period 1995-2011. The paper documents the development of the new research infrastructure, describes the database, and shows some preliminary results. Among them, it shows that there is large heterogeneity in terms of firm productivity or size within narrowly defined industries in all countries. Productivity, and above all, size distribution are very skewed across countries, with a thick left-tail of low productive firms. Moreover, firms at both ends of the distribution show very different dynamics in terms of productivity and unit labour costs. Within-sector heterogeneity and productivity dispersion are positively correlated to aggregate productivity given the possibility of reallocating resources from less to more productive firms. To this extent, we show how allocative efficiency varies across countries, and more interestingly, over different periods of time. Finally, we apply the new database to illustrate the importance of productivity dispersion to explain aggregate trade results.
2013
Crowding-out or co-existence? the competitive position of EU members and China in global merchandise trade Konstantins Benkovskis, Maria Silgoner, Katharina Steiner and Julia Wörz, ECB Working Paper Series No 1617, November 2013 –
Show/Hide Abstract In this paper, we analyze export competition between individual EU Member States and China in third-country goods markets. We find that competitive pressure from China is strongest for small and peripheral EU members, especially for the Southern periphery, Ireland and Central, Eastern and Southeastern European EU members. While we find no hard evidence for “cut-throat” competition between China and EU countries, we see an increasing tendency of smaller EU exporters leaving markets that are increasingly served by China. We base our findings on traditional market share analysis, the exploration of intensive versus extensive margin export growth and on a Dynamic Trade Link Analysis. The latter, a newly developed tool, identifies different types of competitive pressure at the detailed product-destination market level. We use UN Comtrade data at the highest level of disaggregation (6-digit HS) for 75 world exporters and importers over the period 2000–2011.
Firms’ export dynamics: experience vs. size Antoine Berthou and Vincent Vicard, ECB Working Paper Series No 1616, November 2013 –
Show/Hide Abstract This paper provides evidence about the impact that size and experience inexporting have on firms’ dynamics, a critical input in models of firms dynamics.The analysis uses a census of French exports by firm-destination-product over the period 1994-2008 with a monthly frequency. We first uncover a large calendar year bias: the growth of exporters between the first and the second year of export is biased upwards because new exporters may start exporting late during the year.This incomplete calendar year reduces export revenue by 32% on average for the first year of export. We then show that, controlling for size, export experience is negatively related to net growth of exports for surviving exporters. Controlling for export experience, the relationship between average size and net growth of exports shows no systematic pattern. Finally, churning in foreign markets is decreasing with export experience and (sharply) with size.
How do firms in Argentina get financing to export? Tomás Castagnino, Laura D’Amato and Máximo Sangiácomo, ECB Working Paper Series No 1601, November 2013 –
Show/Hide Abstract This paper, developed in the context of the CompNet initiative, delves into the importance of access to financing for the performance of firms in export markets. Using a unique microeconomic database that combines data on Argentine firms characteristics and export performance with information on their domestic and external financing, we provide a rich insight into their financing patterns. We find that: (i) Exporters have more access to bank credit than non-exporters, (ii) firms with more access to bank credit are more likely to start exporting, particularly the medium size ones and (iii) those firms with more access to foreign financing export a wider variety of products and serve more distant and developed markets. We also study the duration of firms in export markets using the Kaplan-Meier estimator. We find that the probability of firms survival in export markets increases with their size in the earlier years of exporting. Once firms become regular exporters, their permanence in export markets seems to be less dependent on their size.
Non-price competitiveness of exports from emerging countries Konstantins Benkovskis and Julia Wörz, ECB Working Paper Series No 1612, November 2013 –
Show/Hide Abstract Building on the methodology pioneered by Feenstra (1994) and Broda and Weinstein (2006), we construct an export price index that adjusts for changes in the set of competitors (variety) and changes in non-price factors (quality in a broad sense) for nine emerging economies (Argentina, Brazil, Chile, China, India, Indonesia, Mexico, Russia and Turkey). The highly disaggregated dataset covers the period 1996−2011 and is based on the standardised 6-digit Harmonized System (HS). Our method highlights notable differences in non-price competitiveness across markets. China shows a huge gain in international competitiveness due to non-price factors. Similarly, Brazil, Chile, India and Turkey show discernible improvements in their competitive position when accounting for non-price factors. Oil exports account for strong improvement in Russia’s non-price competitiveness, as well as the modest losses of competitiveness for Argentina and Indonesia. Mexico’s competitiveness deteriorates prior to 2006 and improves afterwards.
Fishing in the same pool? export strengths and competitiveness of China and CESEE in the EU-15 Market Maria Silgoner, Katharina Steiner, Julia Wörz and Christian Schitter, ECB Working Paper Series No 1559, June 2013 –
Show/Hide Abstract We investigate the impact of China as a global competitor on the trade performance of the ten Central, Eastern and Southeastern European EU Member States (CESEE-10) in the EU-15 market. The paper takes a comprehensive approach as we analyze export growth, export market shares, extensive and intensive margins and the dynamics in the number of joint trade links (Dynamic Trade Link Analysis) from 1995 to 2010. According to our findings, the most contested markets are those for capital goods and transport equipment. Overall, competition between CESEE-10 and China intensified as a result of their outstanding competitiveness and the continuous deepening of already existing trade relationships, while cutthroat competition has not materialized. While this suggests that the CESEE countries pursue a suitable export strategy, diversification of production toward promising new industries and markets remains essential, not least because the EU-15 market is projected to grow at a slower pace in the longer run.
Measuring institutional competitiveness in Europe Stefan Huemer, Beatrice Scheubel and Florian Walch, ECB Working Paper Series No 1556, June 2013 –
Show/Hide Abstract While there are many methods to measure the competitiveness of an economy, most of these concepts ignore the fact that competitiveness can change because of market processes like wage negotiation but also because of political decision-making. Governments that compete with others for factors of production face the incentive to adjust key policy variables to improve their competitive position. Disentangling market-induced and politics-induced changes in competitiveness is not easy, but strongly warranted given current discussions that some EMU Member States should improve their competitive position within the euro area by adjusting policy variables. Increasing country competitiveness is one of the key objectives currently discussed by policy makers in the context of creating an economic union in the euro area, to complement monetary union. We propose a new competitiveness index that captures the dimensions in which politics can influence competitiveness beyond factor price adjustments. Our index shows that the individual components of institutional competitiveness have developed heterogeneously among EMU Member States. To explain these divergent developments, the uneven integration within the EU Single Market may play a role.
Trade Adjustment in the European Union: A Structural Estimation approach Vesna Corbo and Chiara Osbat, ECB Working Paper Series No 1535, April 2013 –
Show/Hide Abstract We estimate the elasticity of substitution of a country’s imports, and that of its exports on the world market, for EU countries using sector level trade data. Wepresent a new empirical strategy based on the identification scheme by Feenstra(1994), which enables the estimation of elasticities from data on exports. Moreover,our use of bootstrap methods allows us to obtain better elasticity measures, and tobetter characterize their accuracy. Our results show much heterogeneity in the estimates of the elasticity of substitution across industrial sectors. This, in turn, points to heterogeneity across countries, due to different production and trade structures.We obtain aggregate elasticities for the EU27 countries, with a mean of 3.5 for importsand 4.0 for exports, bringing us closer to traditional estimates and bridgingthe gap between the newer micro data estimates and the more traditional estimatesfound in the macroeconomic literature.
Fragmentation, incomes and jobs: an analysis of European competitiveness Marcel P. Timmer, Bart Los, Robert Stehrer and Gaaitzen de Vries, ECB Working Paper Series No 1615, November 2013 –
Show/Hide Abstract Increasing fragmentation of production across borders is changing the nature of international competition. As a result, conventional indicators of competitiveness based on gross exports become less informative and new measures are needed. In this paper we propose an ex-post accounting framework of the value added and workers that are directly and indirectly related to the production of final manufacturing goods, called ‘manufactures GVC income’ and ‘manufactures GVC jobs’. We outline these concepts and provide trends in European countries based on a recent multi-sector input-output model of the world economy. We find that since 1995 revealed comparative advantage of the EU27 is shifting to activities related to the production of non-electrical machinery and transport equipment. The workers involved in manufactures GVCs are increasingly in services, rather than manufacturing industries. We also find a strong shift towards activities carried out by high-skilled workers, highlighting the uneven distributional effects of fragmentation. The results show that a GVC perspective is needed to better inform the policy debates on competitiveness.
Competition in the Portuguese economy: insights from a profit elasticity approach João Amador and Ana Cristina Soares, ECB Working Paper Series No 1603, November 2013 –
Show/Hide Abstract This article segments the Portuguese economy into fairly disaggregated markets and estimatesa new competition measure suggested by Boone (2008), which draws on the concept of profitelasticity to marginal costs. In addition, robustness of results across econometric specificationsis discussed, along with their consistency with classical competition indicators. The article concludes that the majority of Portuguese markets exhibited a reduction in competition in the period2000-2009, though there is substantial heterogeneity. In addition, markets that faced competition reductions represent the large majority of sales, gross value added and employment in the Portuguese economy. The non-tradable sector shows lower competition intensity than the tradable sector. Moreover, reductions in competition are relatively widespread across markets inboth sectors, but in terms of sales, gross value added and employment these reductions are moresubstantial in the non-tradable sector. In the majority of markets the assessment on the evolu-tion of competition using profit elasticities is similar to that obtained with classical competitionindicators.
Managers’ mobility, trade performance, and wages Giordano Mion and Luca David Opromolla, ECB Working Paper Series No 1596, October 2013 –
Show/Hide Abstract Knowledge is key to the success of a firm. Firms and their managers acquire knowledge via channels which are often difficult to trackdown and quantify. By matching employer-employee data with trade data at the firm level we show that the export experience acquired by managers in previous firms leads their current firm towards higher export performance,and commands a sizeable wage premium for the manager. Export knowledge is decisive when it is market-specific: managers with experience related to markets served by their current firm receive an even higher wage premium;firms are more likely to enter markets where their managers have experience;exporters are more likely to stay in those markets, and their sales are onaverage higher. Our findings are robust to controlling for endogeneity. The impact of managers’ export experience on a firm’s export performance is at least as strong as that of firm productivity.
Business groups as hierarchies of firms: determinants of vertical integration and performance Carlo Altomonte and Armando Rungi, ECB Working Paper Series No 1554, June 2013 –
Show/Hide Abstract This paper analyzes the performance of global value chains during the trade collapse. To do so, it exploits a unique transaction-level dataset on French firms containing information on cross-border monthly transactions matched with data onworldwide intra-firm linkages as defined by property rights (multinational business groups, hierarchies of firms). This newly assembled dataset allows us to distinguish firm-level transactions among two alternative organizational modes of global value chains: internalization of activities (intra- group trade/trade among related parties) or establishment of supply contracts (arm's length trade/trade among unrelated parties). After an overall assessment of the role of global value chains during the trade collapse, we document that intra-group trade in intermediates was characterized by a faster drop followed by a faster recovery than arm's length trade. Amplified fluctuations in terms of trade elasticities by value chains have been referred to as the "bullwhip effect" and have been attributed to the adjustment of inventories within supply chains. In this paper we first confirm the existence of such an effect due to trade in intermediates, and we underline the role that different organizational modes can play in driving this adjustment.
Is there a role for domestic demand pressure on export performance? Paulo Soares Esteves and António Rua, ECB Working Paper Series No No 1594, September 2013 –
Show/Hide Abstract Traditionally, exports behavior is modeled only as a function of the foreign demand and the real exchange rate. However, it is by now widely acknowledged that these variables are not able to fully explain exports developments. This paper suggests considering domestic demand pressure as an additional variable, revisiting its economic rationale and assessing its empirical importance. In particular, we consider the Portuguese case and find that domestic demand developments are elevant for the short-run dynamics of exports. Moreover, it is found that this relationship is asymmetric, being stronger and more significant when domestic demand is falling than when it is increasing.
2012
Global value chains during the great trade collapse: a bullwhip effect? Carlo Altomonte, Filippo Di Mauro, Gianmarco Ottaviano, Armando Rungi and Vincent Vicard, ECB Working Paper Series No. 1412, January 2012 –
Show/Hide Abstract This paper analyzes the performance of global value chains during the trade collapse.To do so, it exploits a unique transaction-level dataset on French firms containing information on cross-border monthly transactions matched with data on worldwide intra-firmlinkages as defined by property rights (multinational business groups, hierarchies of firms).This newly assembled dataset allows us to distinguish firm-level transactions among two alternative organizational modes of global value chains: internalization of activities (intra-group trade/trade among related parties) or establishment of supply contracts (armís lengthtrade/trade among unrelated parties). After an overall assessment of the role of global value chains during the trade collapse, we document that intra-group trade in intermediates was characterized by a faster drop followed by a faster recovery than arm's length trade. Amplified fluctuations in terms of trade elasticities by value chains have been referred to as the"bullwhip effect" and have been attributed to the adjustment of inventories within supply chains. In this paper we first confirm the existence of such an effect due to trade in intermediates, and we underline the role that different organizational modes can play in driving this adjustment.
Optimism bias? The elasticity puzzle in international economics revisited Vesna Corbo and Chiara Osbat, ECB Working Paper Series No. 1482, October 2012 –
Show/Hide Abstract The elasticity of substitution between domestic and imported goods is a central parameter in macroeconomic models, but after decades of empirical studies there is no consensus on its magnitude. Earlier literature using time series arrives at low values, while more recent studies using panel-based econometric methods on disaggregated data find higher values. We examine the econometric methodology of this more recent literature, which follows the seminal work by Feenstra (1994),looking in more detail at the effect on the results of the non-linear mapping between reduced-form and structural parameters. Our main contribution is the use of bootstrap methods, which offer more insight into the Feenstra method and can explain why researchers applying it may tend to find high estimates. The bootstrap not only allows us to obtain considerably less biased estimates of the structural elasticity parameter, but also to better characterize their accuracy, a point vastly overlooked by the literature.
