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Friday, December 15, 2017
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Price and non-price competitiveness – can it explain current account imbalances in the euro area?
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Price and non-price competitiveness – can it explain current account imbalances in the euro area?

19 pages · 3.35 EUR
(September 2016)

 
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Introduction:

The introduction of the European monetary union was accompanied by the so called Lisbon strategy, to make Europe the 'most competitive and the most dynamic knowledge-based economy in the world'. Sixteen years, a financial crisis and a Great Recession later, the results of both monetary union and Lisbon strategy (and its successors) are mixed. The common currency and the new regulatory framework amplified imbalances within the euro area as a result of two interwoven growth models, a domestic demand-led and an export-oriented growth model.

Both mainstream writers and heterodox authors like Flassbeck/Lapavitsas stress the role of price competitiveness, usually based on a comparison of unit labour cost developments or similar indicators. However, a sole focus on price competitiveness ignores two relevant aspects. Firstly, the effect of incomes on GDP growth and imports should not be underestimated. An increase in incomes leads to GDP growth but may worsen the trade balance due to higher imports. Secondly, and this is sometimes disregarded in the post-Keynesian camp, non-price competitiveness also impacts on the trade balance and thus the current account. Factors like institutions, infrastructure, culture, research & development and education determine the non-price competitiveness of firms and thus – at least partly – their market power and export volumes. Mainstream publications like the Global Competitiveness Report (2014) take this into account but their interpretation of the situation surely deviates from a heterodox point of view.


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Prof. Dr. Torsten Niechoj
Torsten Niechoj

Hochschule Rhein-Waal, Fakultät Kommunikation und Umwelt. Zuvor: Wissenschaftlicher Mitarbeiter am Institut für Makroökonomie und Konjunkturforschung (IMK) in der Hans-Böckler-Stiftung.

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