Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.
Evaluation of Non-PriceCompetitiveness of Exports from the Central, Eastern and South-EasternEuropean Countries in the EU ...
Outline• Drawbacks of traditional REER indicators• How to assess non-price competitiveness?   o Theoretical framework   o ...
Motivation                         REER signal losses in price competitiveness – is it the                         whole s...
Motivation                        Markets shares signal improving competitiveness                       The share of expor...
Motivation          REER indicators have list of drawbacks• Bad approximation for export prices   o Whole economy, no dist...
Goal of the project         Price and non-price competitiveness of CESEE countries• Evaluate the price and non-price compe...
Short literature review            Several papers dealing with quality and variety issues• Feenstra, R.C.(1994) “New Produ...
How to evaluate non-price          competitiveness?• We have trade data on a very disaggregated level:   o prices (unit va...
Theoretical framework                  Consumer’s utility function• First-level CES utility function (imports and domestic...
Theoretical framework          Minimum unit-cost function• After solving the utility maximization problem                 ...
Theoretical framework           Relative price on a single market• Our goal, however, is to evaluate quality-adjusted rela...
Theoretical framework             Change of a relative price on a single market• Relative price of a good g imported from ...
Theoretical framework              Change of a relative price in a single market• Relative price of a good g imported from...
Theoretical framework          How to estimate quality/taste parameter?• After solving utility maximization problem:      ...
Theoretical framework           Aggregated relative export price• Relative price indices on a particular market (RXP(i)gkt...
Estimation of elasticities            System of demand and supply equations• We need to estimate elasticities of substitut...
Estimation of elasticities             Transformation of the system• In order to take advantage of the independence of ε g...
Estimation of elasticities            GMM estimates• Broda and Weinstein (2006) argue that one needs to define a  set of m...
Estimation of elasticities           Results for big EU countries                                                         ...
Database and coverage         Eurostat Comext data• Eurostat Comext   o Import data for all 27 EU countries   o 8-digit CN...
Relative export price indices                                    Baltic countries and Bulgaria                            ...
Relative export price indices                                    Vyshegrad group countries                                ...
Relative export price indices                                    Romania and Slovenia                                     ...
Relative quality/taste of Estonia’s exports             By main export sectors Cumulated contribution of relative quality ...
Relative quality/taste of Estonia’s exports             By main export markets Cumulated contribution of relative quality ...
Conclusions         Quality/taste of CESEE exports is increasing• The traditional competitiveness measures based on  unit ...
Further plans         Needs for improvement in methodology, other database• No effect on relative price index from changes...
Upcoming SlideShare
Loading in …5
×

Konstantīns Beņkovskis, Julia Wörz. Evaluation of Non-Price Competitiveness of Exports from the Central, E Eastern and South-Eastern European Countries in the EU market

798 views

Published on

Konstantīns Beņkovskis (Bank of Latvia)
Julia Wörz (Österreichische Nationalbank)
27 April 2012

Published in: Economy & Finance
  • Be the first to comment

  • Be the first to like this

Konstantīns Beņkovskis, Julia Wörz. Evaluation of Non-Price Competitiveness of Exports from the Central, E Eastern and South-Eastern European Countries in the EU market

  1. 1. Evaluation of Non-PriceCompetitiveness of Exports from the Central, Eastern and South-EasternEuropean Countries in the EU market Konstantīns Beņkovskis (Bank of Latvia) Julia Wörz (Österreichische Nationalbank) 27 April 2012
  2. 2. Outline• Drawbacks of traditional REER indicators• How to assess non-price competitiveness? o Theoretical framework o Elasticities of substitution o Dynamics in price and non-price competitiveness in CESEE o Contribution of non-price factors in some product sectors of Estonia’s exports• Conclusions
  3. 3. Motivation REER signal losses in price competitiveness – is it the whole story? Real effective exchange rate (36 partner countries, 1999=100) CPI based ULC based 210 220 Bulgaria Czech 190 200 Republic Estonia 180 170 Latvia 160 Lithuania 150 Hungary 140 Poland 130 120 Romania 110 Slovenia 100 Slovakia 90 80 2011 2011 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010Source: Eurostat 3
  4. 4. Motivation Markets shares signal improving competitiveness The share of exports in the World trade (2002=100) 250 Latvia 230 Lithuania 210 Estonia 190 Bulgaria 170 Czech Republic Hungary 150 Poland 130 Romania 110 Slovakia 90 Slovenia 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Q1-Q3*Source: WTO 4
  5. 5. Motivation REER indicators have list of drawbacks• Bad approximation for export prices o Whole economy, no distinction between domestic and external markets o Profit martins are ignored• Structural issues are not captured: o Differences in export structure are not taken into account o Need to analyse competitiveness at disaggregated level• Focusing on price competitiveness o Some measures are adjusted for quality (e.g. CPI-based) o However, many other important factors left aside (e.g. taste, image of brands) o Need to consider non-price competitiveness issues
  6. 6. Goal of the project Price and non-price competitiveness of CESEE countries• Evaluate the price and non-price competitiveness of CESEE countries – Latvia, Estonia, Lithuania, Poland, Czech Republic, Hungary, Slovakia, Slovenia, Romania, Bulgaria• Due to data constraints we are limiting our analysis to the exports to the EU o Still analysing the most part of CESEE exports
  7. 7. Short literature review Several papers dealing with quality and variety issues• Feenstra, R.C.(1994) “New Product Varieties and the Measurement of International Prices”, American Economic Review, 84(1), pp.157-177.• Hummels, D. and Klenow, P.J. (2005) “The Variety and Quality of Nation’s Exports”, American Economic Review, 95(3), pp.704-723.• Broda, C. and Weinstein, D.E. (2006) “Globalization and the Gains from Variety”, Quarterly Journal of Economics, 121(2), pp.541-585.• Benkovskis, K. and Rimgailaite, R. (2011) “The Quality and Variety of Exports from the New EU Member States”, Economics of Transition, 19(4), 2011, 723-747.• Benkovskis, K. and Wörz, J. (2011) “How Does Quality Impact on Import Prices?”, OeNB Working Papers, 175/2011.• Benkovskis, K. and Wörz, J. (2012) “Evaluation of Non-Price Competitiveness of Exports from Central, Eastern and South-Eastern European Countries at the EU market”, Bank of Latvia Working Papers, 1/2012.
  8. 8. How to evaluate non-price competitiveness?• We have trade data on a very disaggregated level: o prices (unit values, euro/kg) o volumes (kg)• Why shouldn’t we combine both sources instead of focusing just on one? o If real market share improves when relative export price is increasing, it gives us some clue about non-price factors• Consistent theoretical framework needed
  9. 9. Theoretical framework Consumer’s utility function• First-level CES utility function (imports and domestic good) κ κ −1 κ −1   κ −1  U t =  Dt κ + Mt κ  ; κ >1   • Second-level CES utility function (different imported goods) γ γ −1 γ −1   M t =  ∑ M gt γ  ; γ >1  g∈G  elasticity of substitution set of goods   between products• Third-level CES utility function (different varieties of a good) σg σ g −1  1  σ g −1 M gt =  ∑ d gct m gct σg σg  ; σg >1  c∈C  elasticity of substitution   between varieties set of countries quality or taste parameter
  10. 10. Theoretical framework Minimum unit-cost function• After solving the utility maximization problem 1  1−σ g  1−σ g φ gt =  ∑ d gct p gct   c∈C  o minimum unit-cost depend on price, quality or taste parameter and set of partner countries (variety)• The exact import price index for good g is defined as: φ gt Pg = φ gt −1
  11. 11. Theoretical framework Relative price on a single market• Our goal, however, is to evaluate quality-adjusted relative export price index o We can interpret xgct as country’s c exports of a product g o We propose to define changes of relative export price as follows (p p gkt −1 )(d gkt d gkt −1 ) 1 φ k φk gt −1 1−σ g RXPgkt = = gt gkt −k −k − − φ gt φgt −1 φ gtk φ gtk−1 where • φgtk – minimum unit-cost of good g in case it is exported only by country k • φgt-k – minimum unit-cost of good g in case it is exported by all countries except k
  12. 12. Theoretical framework Change of a relative price on a single market• Relative price of a good g imported from country k relative to other origins: −k −k 1 wgct wgct  p gkt p gct −1   λ− k  1−σ g  d gkt d gct −1 1−σ g RXPgct = ∏    gt  ∏k  d d    c∈C g k  p gct p gkt −1   λ− k    −  gt −1  c∈C g  gct − gkt −1  where o Cg-k – set of countries exporting to a particular market in both periods, excluding country k o w-kgct – Sato-Vartia weights of exporters, excluding county k o ∑p − gct xgct ∑p − x gct −1 gct −1 c∈C g k −k c∈C g k −k λ = λ = ∑ pgct xgct ∑p gt gt −1 x gct −1 gct −1 − − c∈C gtk c∈C gtk−1
  13. 13. Theoretical framework Change of a relative price in a single market• Relative price of a good g imported from country k relative to other origins: −k −k 1 wgct wgct  p gkt p gct −1   λ− k  1−σ g  d gkt d gct −1 1−σ g RXPgct = ∏    gt  ∏k  d d     λ− k    c∈C g k  p gct p gkt −1  −  gt −1  c∈C g  gct − gkt −1  1 2 3 1. Traditional relative price index – increase denotes worsening price competitiveness 2. Adjustment for changes in monopoly power of exporters. If set of partner countries is increasing, relative price index increase as well 3. Adjustment for changes in quality or taste. Rise in relative quality or taste decrease relative price index and improve competitiveness
  14. 14. Theoretical framework How to estimate quality/taste parameter?• After solving utility maximization problem: relative prices (UVX) relative quantities (kg) 1  d gct   p gct  1  x gct  ln  = ln + ln  σ g  d gkt    p  gkt  σ  g x  gkt   benchmark country• Relative quality or taste depends on relative prices and relative volumes of sales• It also depends on elasticity of substitution o relative quantities are not important for perfect competition
  15. 15. Theoretical framework Aggregated relative export price• Relative price indices on a particular market (RXP(i)gkt) should now be aggregated by products (g) and by export markets (i)• Weights from exporter side should be used RXPkt = ∏∏ RXP(i )gkt igt W i∈I g∈G where o RXPkt – aggregated relative export price index o Wigt is weight of a product g exported to country i in total exports to country k
  16. 16. Estimation of elasticities System of demand and supply equations• We need to estimate elasticities of substitution• Elasticity of substitution between varieties estimated from the system o Relative demand equation: ∆ ln s gct ∆ ln p gct = −(σ g − 1) + ε gct ; ε gct = ∆ ln d gct ∆ ln s gkt ∆ ln p gkt o Relative supply equation: ∆ ln p gct ω g ∆ ln s gct = + δ gct ∆ ln p gkt 1 + ω g ∆ ln s gkt• Absence of exogenous variables to identify the system and estimate elasticities
  17. 17. Estimation of elasticities Transformation of the system• In order to take advantage of the independence of ε gct an δ gct , these two equations are multiplied together to obtain (Leamer’s, 1981, approach): 2 2  ∆ ln p gct   ∆ ln s gct   ∆ ln p gct  ∆ ln s gct    = θ1   + θ2    + u gct  ∆ ln p   ∆ ln s   ∆ ln p  ∆ ln s   gkt   gkt   gkt  gkt  ωg 1 − ω g (σ g − 2 ) θ1 = θ2 = u gct = ε gctδ gct (1 + ω g )(σ g − 1) ; (1 + ω )(σ g g − 1) ;• Relative price x market shares are correlated with error term, estimates will be biased• However, we can obtain consistent estimates by exploiting the panel nature of the data
  18. 18. Estimation of elasticities GMM estimates• Broda and Weinstein (2006) argue that one needs to define a set of moment conditions for each good g by using the independence of unobserved demand and supply disturbances for each country over time: G(β g ) = Et (u gct (β g )) = 0 ∀c β g = (σ g , ω g )• For each good g the following GMM estimator is obtained β g = arg min G * (β g )′WG* (β g ) ˆ β ∈B o solved as constrained minimization problem. B is a set of economically feasible values of β (σg>1, ωg≥0)
  19. 19. Estimation of elasticities Results for big EU countries Distribution of elasticities of Median Median substitution 1200 elasticity mark-up GermanyGermany 6.19 19.3% 1000 FranceFrance 5.39 22.8% 800 UK ItalyItaly 5.76 21.0% 600UK 4.91 25.6% 400… … … 200 0 121.5 - 148.4 221.4 - 270.4 403.4 - 492.7 735.1 - 897.8 1.0 - 1.2 1.8 - 2.2 3.3 - 4.1 6.0 - 7.4 11.0 - 13.5 20.1 - 24.5 36.6 - 44.7 66.7 - 81.5
  20. 20. Database and coverage Eurostat Comext data• Eurostat Comext o Import data for all 27 EU countries o 8-digit CN classification level • approx. 10 000 products o 1999 to 2010, annual data o 50 main partner countries • All EU countries, US, Japan, China, India, Brazil, Canada, Russia etc.• Therefore, we are assessing competitiveness of CESEE countries on EU market o Still analysing the most part of CESEE exports
  21. 21. Relative export price indices Baltic countries and Bulgaria Latvia Estonia140 140130 130120 120110 110100 100 90 90 80 80 70 70 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Conventional Adjusted by non-price factors Conventional Adjusted by non-price factors Lithuania Bulgaria140 140130 130120 120110 110100 100 90 90 80 80 70 70 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Conventional Adjusted by non-price factors Conventional Adjusted by non-price factors
  22. 22. Relative export price indices Vyshegrad group countries Poland Czech Republic140 140130 130120 120110 110100 100 90 90 80 80 70 70 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Conventional Adjusted by non-price factors Conventional Adjusted by non-price factors Slovakia Hungary140 140130 130120 120110 110100 100 90 90 80 80 70 70 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Conventional Adjusted by non-price factors Conventional Adjusted by non-price factors
  23. 23. Relative export price indices Romania and Slovenia Romania Slovenia140 140130 130120 120110 110100 100 90 90 80 80 70 70 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Conventional Adjusted by non-price factors Conventional Adjusted by non-price factors
  24. 24. Relative quality/taste of Estonia’s exports By main export sectors Cumulated contribution of relative quality to export competitiveness (1999=100)220 340200 300180 260160 220140 180120 140100 100 80 60 60 20 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Machinery and mechanical appliances Wood and wood products Base metals and articles thereof Prepared foodstuffs Chemical products Mineral products (RHS) 24
  25. 25. Relative quality/taste of Estonia’s exports By main export markets Cumulated contribution of relative quality to export competitiveness (1999=100)250 600220 500190 400160 300130 200100 100 70 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Finland Sweden Latvia Lithuania Denmark Germany (RHS) 25
  26. 26. Conclusions Quality/taste of CESEE exports is increasing• The traditional competitiveness measures based on unit values show that CESEE export prices increased faster than export prices of competitors o Is it creating a problem for export competitiveness?• Our analysis indicates that it was driven by faster increase in quality/taste of CESEE exports o In fact, aggregate competitiveness (including price and non-price factors) of CESEE even improved
  27. 27. Further plans Needs for improvement in methodology, other database• No effect on relative price index from changes in set of export products/markets o Gains from diversification? o Theoretical framework should be more developed for supply side • separate taste from quality?• Due to data constraint we analyse only competitiveness on the EU market o Competitiveness on the World market o UN Comtrade database

×