Trade in Value Added: Do We Need New Measures of Competitiveness?

39 Pages Posted: 29 Jan 2017  

Kirsten Lommatzsch

German Institute for Economic Research (DIW Berlin)

Maria Silgoner

Oesterreichische Nationalbank (OeNB)

Paul Ramskogler

Oesterreichische Nationalbank (OeNB)

Multiple version iconThere are 2 versions of this paper

Date Written: 2016

Abstract

It has been argued that the increasing importance of global value chains necessitates a modification of conventional competitiveness measures. We compile a broad dataset including value added trade, gross exports and conventional and value added based real exchange rates. To sharply focus on external competitiveness, a new price competitiveness indicator is introduced, the TWULC (Trade Weighted Unit Labour Cost indicator). It weights sector-specific cost trends according to sector shares in exports. Econometric tests for a panel of 38 countries show that the focus on value added trade generally improves the explanatory power of export equations. Value added exports' sensitivity towards real exchange rates is up to four times higher than that of gross exports. Real effective exchange rates focusing on exporting industries and on value added weights yield more robust results across the specifications, but do not systematically outperform the more conventional measures of price or cost competitiveness.

Keywords: competitiveness, external trade, labour costs

JEL Classification: F14, J30

Suggested Citation

Lommatzsch, Kirsten and Silgoner, Maria and Ramskogler, Paul, Trade in Value Added: Do We Need New Measures of Competitiveness? (2016). Bundesbank Discussion Paper No. 52/2016. Available at SSRN: https://ssrn.com/abstract=2907587

Kirsten Lommatzsch (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

Maria Silgoner

Oesterreichische Nationalbank (OeNB)

Otto-Wagner-Platz 3, PO Box 61
Vienna,
1010 Vienna, A-1011
Austria

Paul Ramskogler

Oesterreichische Nationalbank (OeNB) ( email )

Otto-Wagner-Platz 3, PO Box 61
Vienna,
1010 Vienna, A-1011
Austria

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