Abstract
In this paper we assess the current relevance of different sources of international competitiveness. Relative prices, labor costs, and productivity are evaluated as determinants of a country's international competitiveness at the industry level. Working with detailed data on unit values and with industry data on productivity, we empirically implement a MacDougall-type model for Spanish and French trade to Brazil, China, Japan, and the U.S. The period under study is 1980 to 2001 and we distinguish in our analysis between homogenous, reference-priced, and differentiated goods. Our results indicate that cost competitiveness factors are only valid for explaining trade with developing countries while other factors are of importance for developed economies. Overall price competitiveness is of importance, but for differentiated goods, factors distinct from prices seem to determine export success.
Highlights
As a consequence of the globalization process, trade flows have increased 22 fold since 1970, much more than the GDP during the same period
What is the response of national economies to globalization in terms of trade? International trade theories predict that increasing globalization is associated with a higher production concentration of certain economic activities, and increased specialization, according to comparative advantage (Ricardo-type models) and economies-of-scale criteria (Krugman, 1991)
We simplify the terms used in Equations 3 and 4 which have France in the numerator and Spain in the denominator. lxv stands for relative (France over Spain) export strength in logs, luv is utilized for relative unit values in logs, lw is relative labor compensation, and lva is relative productivity in logs. j characterizes the destination market, k stands for sector, and t stands for time
Summary
As a consequence of the globalization process (progressive deregulation of trade achieved in multilateral trade negotiation rounds, by regional and bilateral trade agreements, and by implementing integrated production systems), trade flows have increased 22 fold since 1970, much more than the GDP during the same period. The value added of high and low technology industries has experienced a rate of growth above the average (2.26% and 1.21%, respectively). The comparative advantage is gradually focused upon oil refining, basic metallurgy, minerals, motor vehicles, metal products, and traditional industries, such as food, beverages and tobacco, and clothes and footwear This pattern was broken with Spain’s entry into the EC due to the need for restructuring in the industrial sector, together with the sensitiveness of the competitive advantages, features that were hidden until that time. Spain still has a long way to go to achieve convergence Given these developments, and in order to analyze the determinants of Spain’s relative export strength over the last few decades, we propose estimating a model that includes relative productivity, relative labor compensation, and relative unit values as the factors influencing export levels
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