How Do Exporters React to Changes in Cost Competitiveness?

26 Pages Posted: 5 Oct 2016

See all articles by Stefaan Decramer

Stefaan Decramer

KU Leuven

Catherine Fuss

National Bank of Belgium

Jozef Konings

Catholic University of Leuven (KUL) - LICOS - Centrum voor Transitie-economie; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Multiple version iconThere are 2 versions of this paper

Date Written: October 2016

Abstract

Various international institutions such as the European Commission, the ECB and the OECD often use unit labour costs as a measure of international competitiveness. The goal of this paper was to examine how well this measure is related to international export performance at the firm level. To this end, we use Belgian firm‐level data for the period 1999 to 2010 to analyse the impact of unit labour costs on exports. We find an estimated elasticity of the intensive margin of exports with respect to unit labour costs between −0.2 and −0.4. This elasticity varies between sectors and between firms, with more labour‐intensive firms having a higher elasticity. The microdata also enable us to analyse the impact of unit labour costs on the extensive margin. Our results show that higher unit labour costs reduce the probability of starting to export for non‐exporters and increase the probability of exporters stopping. While our results show that unit labour costs have an impact on the intensive margin and extensive margin of firm‐level exports, the effect is rather low, suggesting that pass‐through of costs into prices is limited. The latter is consistent with recent trade models emphasising that not only relative costs, but also demand factors such as quality and taste matter for explaining firm‐level exports.

Suggested Citation

Decramer, Stefaan and Fuss, Catherine and Konings, Jozef, How Do Exporters React to Changes in Cost Competitiveness? (October 2016). The World Economy, Vol. 39, Issue 10, pp. 1558-1583, 2016. Available at SSRN: https://ssrn.com/abstract=2847997 or http://dx.doi.org/10.1111/twec.12412

Stefaan Decramer (Contact Author)

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

Catherine Fuss

National Bank of Belgium ( email )

Brussels, B-1000
Belgium

Jozef Konings

Catholic University of Leuven (KUL) - LICOS - Centrum voor Transitie-economie ( email )

Waaistraat 6 - box 3511
Leuven, 3000
Belgium
+32 16 326 589 (Phone)
+32 16 326 599 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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