How do exporters react to changes in cost competitiveness?
Loading...
Date
2014-12
Authors
Decramer, Stefaan
Fuss, Catherine
Konings, Jozef
Journal Title
Journal ISSN
Volume Title
Publisher
European Central Bank
Abstract
Policy-making institutions such as the European Commission, the ECB and the OECD often use unit
labor costs as a measure of international competitiveness. The goal of this paper is 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 1999-2010 to analyze the impact of unit labor costs on exports. We use exports
adjusted for their import content. We find a statistically significant negative effect of unit labor costs on
export performance of firms with an estimated elasticity of the intensive margin of exports ranging between
-0.2 and -0.4. This result is robust to various specifications, including firm, time and sector fixed effects
and estimation approaches. We find that this elasticity varies between sectors and between firms, with firms
that are more labor-intensive having a higher elasticity of exports with respect to unit labor costs. The micro
data also enable us to analyze the impact of unit labor costs on the extensive margin. Our results show that
higher unit labor costs reduce the probability of starting to export for non-exporters and increase the
probability of exporters stopping. While our results show that unit labor costs have an impact on the
intensive margin and extensive margin of firm-level exports, the effect is rather low, suggesting that passthrough
of costs into prices is limited or that demand for exported products is not elastic. The latter is
consistent with recent trade models emphasizing that not only relative costs, but also demand factors such
as quality and taste matter for explaining firm-level exports.
Description
Keywords
unit labor costs, exports, competitiveness, heterogeneity, Research Subject Categories::SOCIAL SCIENCES::Business and economics
Citation
Decramer Stefaan, Fuss Catherine, Konings Jozef, 2014, European Central Bank; How do exporters react to changes in cost competitiveness?. http://nur.nu.edu.kz/handle/123456789/1890