Measuring Competitiveness: Trade in Goods or Tasks?

Abstract

With global supply chains, any value added or production task can be traded as part of goods. This means that competitiveness can be measured either in terms of “tasks” (Bems and Johnson, 2012), or goods, but with goods prices reflecting the cost of tasks embedded in those goods. We show that when measuring competitiveness in goods, the formula used in computing the real effective exchange rates at the IMF (Bayoumi, Lee, and Jayanthi, 2005) needs to be expressed in terms of the price of value added and needs an additional term, which captures a gain or loss in competitiveness of goods due to outsourcing.

Keywords: Global competitiveness, Emerging markets, International trade, Real effective exchange rates, Economic models, Real Effective Exchange Rate, Global Supply Chains, reer, global supply, intermediate inputs, domestic production, gross exports, net export, elasticity of substitution, export data, trade data, net exports, supply chain, trading partners, bilateral trade, trade patterns, export performance, competitiveness of goods, export equation, export market, export demand, export product, unit labor costs, total exports, export competition, export trade, constant elasticity of substitution, import competition, imported intermediates, trading partner, partner country, export shares, factor pri

JEL Classification: F10, F30