Abstract
This paper obtains a comprehensive measure of non-price competitiveness factors (NPCFs) based on a simple international trade model. Trade frictions are reinterpreted as the NPCF’s conditions (inferior product quality, and suboptimal geographical and industry specialization of exports) that inhibit trade. The setup is applied to the five largest Euro Area economies for the period 2000-2017. NPCF have improved significantly in the Netherlands and Spain, mildly in Italy and Germany, and mildly worsened in France. This result helps explain the Spanish ’paradox’. It also suggests that the conventional North-South divide in the Euro Area might not be entirely applicable regarding NPCF.
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