Agnès Bénassy-Quéré, Olivier Blanchard, Laurence Boone, Gilbert Cette, Chiara Criscuolo, Anne Epaulard, Sébastien Jean, Margaret Kyle, Philippe Martin, Xavier Ragot, Alexandra Roulet, David Thesmar, 24 July 2019

In September 2016, the European Council invited all euro area members to set up a National Productivity Board to focus on productivity and competitiveness. This column summarises the main findings of the first report of the Conseil National de Productivité, which analyses the causes of the French productivity slowdown that are common to other OECD countries and those that are specific to France. It also proposes a definition of competitiveness that should be useful for euro area macroeconomic policy debates and explains why current account imbalances in the euro area are both a sign of deficient adjustment mechanisms and a cause of concern.

Miguel Almunia, Pol Antràs, David Lopez Rodriguez, Eduardo Morales, 04 February 2019

The recommendation that firms reduce unit and labour costs to gain international competitiveness in response to domestic economic crises is based on the assumption that domestic and foreign supply decisions are not linked at the firm level. This column shows that in a monetary union, exports can have a significant impact in mitigating domestic slumps through the ‘venting-out’ mechanism. By reducing their use of flexible inputs relative to fixed, firms can achieve a short-term decrease in marginal costs to gain competitiveness abroad. This explains how an economic crisis and an export boom can take place at the same time.

Harald Hau, Difei Ouyang, 26 October 2018

In the new century, China’s large economy features many local real estate booms originating in insufficient land supply. Using a panel of 900,000 Chinese manufacturing firm-year observations with matched firm locations, this column quantifies the causal effects of local real estate booms on local firms. It demonstrates how the diversion of local savings into the real estate sector in cities with real estate booms exerts a large toll on other local industries through higher costs of capital, underinvestment, real wage decreases, and industrial decline.

Hisamitsu Saito, Toshiyuki Matsuura, 25 November 2016

Agglomeration’s impact on product quality has received much less attention than its impact on productivity, despite the importance of quality as a precondition for economic development. This column employs plant-product-level data from Japanese manufacturing to assess the effects of urban agglomeration on product quality. The findings suggest that state and municipal tax breaks, and other public efforts to attract enterprises, enhance economic competitiveness by improving product quality along with productivity.

Kozo Kiyota, Keita Oikawa, Katsuhiro Yoshioka, 09 October 2016

The international competitiveness of industries has received much scholarly attention, but this research has tended to focus on Europe and North America. This column examines the competitiveness of industries in six Asian countries. Global value chain income is increasing in China, India, and Indonesia. And unlike workers in EU countries, workers in the Asian countries have benefited from this increased competitiveness.

Jörg Decressin, Prakash Loungani, 02 December 2015

Internal devaluations have been suggested as a possible policy option for countries in a currency union facing large external deficits. These policy actions seek to restore competitiveness by replicating the outcomes of an external devaluation. This column examines wage moderation as a potential means of internal devaluation for EZ countries. If pursued by several countries, wage moderation can work if monetary policy is not constrained by the zero lower bound, or if supported by quantitative easing. Without sufficient monetary accommodation, it will not deliver much of a boost to output, and may hurt overall EZ output.

Otaviano Canuto, Cornelius Fleischhaker, Philip Schellekens, 11 January 2015

While Brazil has become one of the largest economies in the world, it remains among the most closed economies as measured by the share of exports and imports in GDP. This column argues that this cannot be explained simply by the size of Brazil’s economy. Rather it is due to a reliance on domestic value chain integration as opposed to participation in global production networks. Greater trade openness could produce efficiency gains and help Brazil address its productivity and competitiveness challenges.

Benedicta Marzinotto, Alessandro Turrini, 05 September 2014

The link between public- and private-sector compensation has important implications for the labour market and price competitiveness. This column reports that manufacturing and government wages co-move both in the long and short run, but that the long-run co-movement is much stronger where the government is an important employer. This co-movement tends to break down during fiscal consolidation periods, except in large-government countries. Moreover, manufacturing wages exhibit a stronger co-movement with productivity in countries where government wages are set via collective bargaining. 

Zhi Wang, Shang-Jin Wei, Kunfu Zhu, 16 April 2014

One common measure of trade linked international production networks is the so-called VAX ratio, i.e. the ratio of value-added exports to gross exports. This column argues that this measure is not well-behaved at the sector, bilateral, or bilateral sector level, and does not capture important features of international production sharing. A new gross trade accounting framework is proposed that can better track countries’ movements up and down global value chains.

Jose Luis Diaz Sanchez, Aristomene Varoudakis, 06 February 2014

External imbalances within the Eurozone grew substantially between the introduction of the euro in 1999 and the global financial crisis of 2008–09. Using new empirical evidence, this column argues that imbalances in the Eurozone periphery were mainly driven by a domestic demand boom, triggered by greater financial integration, with changes in the periphery’s competitiveness playing only a minor role. Internal devaluation may thus have been of limited effectiveness in restoring external balances, although better external competitiveness may eventually boost medium-term growth.

Claire Giordano, Francesco Zollino, 18 July 2013

Since the mid-2000s competitiveness indicators for Italy have been providing conflicting signals. This column argues that producer prices and labour costs have actually moved hand in hand since 1992, and that the rise in the real effective exchange rate based on labour costs can be attributed to price-cost divergences in its main trading partners. Due to the internationalisation of production processes and fading share of labour in overall costs, price-based indicators may be more appropriate to assess external competitiveness.

Paolo Manasse, 19 June 2013

It’s currently very trendy in Italy to blame Angela Merkel, Mario Monti, and austerity measures for the current recession. This column argues that while the severity of the downturn is clearly a cyclical phenomenon, the inability of the country to grow out of it is the legacy of more than a decade of a lack of reforms in credit, product and labour markets. This lack of reform has suffocated innovation and productivity growth, resulting in wage dynamics that are completely decoupled from labour productivity and demand conditions.

Hans-Werner Sinn, Akos Valentinyi, 09 March 2013

Will addressing large internal imbalances lead us out of the Eurozone crisis? This column argues that it might. Periphery countries should devalue in order to regain competitiveness and reduce imbalances. As to whether they should pursue internal or external devaluation, the answer remains unclear. Overall, given that policymakers have excluded the option of exit, economic policymaking must focus on the possibilities for internal devaluations, despite some of the difficulties it may bring.

Otaviano Canuto, Matheus Cavallari, José Guilherme Reis, 27 February 2013

Brazilian exports of goods and services have grown sharply in recent years, tripling since 2000. This column argues that Brazil’s export performance depends mostly on favourable geographical and sector composition effects and that a recent slowdown in industrial exports, production, and investments are not related to insufficient demand but rather supply-side inefficiencies and rising costs. Policymakers ought to aim for urgent progress on the nation’s microeconomic reforms agenda, an increase in the investment-to-GDP ratio, and improvements in human capital.

Mary Amiti, Oleg Itskhoki, Jozef Konings, 19 February 2013

Why is it that large movements in exchange rates have small effects on international prices? What does this mean for a crisis-stricken Eurozone? Using firm-level data, this column presents new research that investigates this exchange rate ‘disconnect’. Evidence suggests that the prices of the largest firms – with their disproportionately large share of trade – are insulated from exchange rate movements. The international competitiveness effects of a euro devaluation are therefore likely to be modest, given major exporters’ reliance on global supply chains.

Rudolfs Bems, Robert Johnson, 06 December 2012

With the rise of complex, globalised supply chains is the real effective exchange rate (REER), the most commonly used measure of competitiveness, now outdated? If it is, what should replace it? This column presents a ‘Value-Added REER’ and shows that it differs substantially from the conventional REER. Because it is possible to construct a new Value-Added REER from existing data, policymakers interested in improving their understanding of competitiveness might well consider including it in their toolbox.

Miguel Cardoso, Mónica Correa-López, Rafael Doménech, 24 November 2012

How can we explain the ‘Spanish paradox’ – a modest market share loss since the launch of the euro alongside a real exchange rate appreciation? This column argues that the non-price determinants of competitiveness have been more important than export prices in explaining the change of world exports shares. Notably, Spanish firms’ strategic decision-making has helped shape Spain´s internationalisation and may, ultimately, be the crucial factor explaining the paradox.

Carlo Altomonte, Tommaso Aquilante, Gianmarco Ottaviano, 23 August 2012

Competitiveness is one of the most debated issues in policy circles. But, what triggers it? Capitalising on the first existing harmonised cross-country dataset measuring the entire range of international activities of firms in seven European countries, this column identifies the triggers of competitiveness. It argues that policymaking could be improved by firm-level evidence if there were less reluctance to the use of micro-founded indicators to inform policy decisions.

Bernard Delbecque, 30 July 2012

The escalation of the crisis in the Eurozone calls for new measures to reduce yields on Spanish bonds. This column succinctly lays out the options and finds them wanting. It argues that sovereign bond purchases might not be sufficient to reassure investors. A credible solution will also require a coordinated strategy to address Spain’s competitiveness problem.

Zsolt Darvas, 06 July 2012

The forefathers of Europe’s single currency argued that rather than devalue their currencies to restore competitiveness, countries could devalue ‘internally’. Against the current of bad press, this column presents a novel way of recording competitiveness and argues that Ireland, Spain, Latvia, and Lithuania have all managed these adjustments – but not without paying a huge toll in jobs lost.

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