Non-Price Competitiveness Factors—A simple measure and implications for the five largest euro area countries

Abstract

This paper obtains a versatile measure of non-price competitiveness factors (NPCF) based on a simple international trade model. Trade frictions are reinterpreted as the NPCF conditions (inferior product quality, suboptimal geographical and industry specialisation of exports and any other limitations of the production and exporting channels) that inhibit trade. The set-up is applied to the five largest euro area economies for the period 2000–2018. Over this period, NPCF have improved significantly in the Netherlands and Spain, mildly in Italy and Germany and mildly worsened in France. In all countries, the improvement in NPCF has been more intense and sustained in the first half of the period and more unstable in the second half. The set-up is also applied at the product level, considering four types of products depending on the stage of processing, rendering results which are similar across product types and aligned with those for the whole economy. The results suggest that the conventional North–South divide in the euro area might not be entirely applicable regarding NPCF.