MACROECONOMIC STATISTICS

MACROECONOMIC STATISTICS

Sponsored by a Grant TÁMOP-4.1.2-08/2/A/KMR-2009-0041 Course Material Developed by Department of Economics,

Faculty of Social Sciences, Eötvös Loránd University Budapest (ELTE) Department of Economics, Eötvös Loránd University Budapest

Institute of Economics, Hungarian Academy of Sciences Balassi Kiadó, Budapest

2 Author: Gábor Oblath

Supervised by Gábor Oblath January 2011

Week 10

International competitiveness Part II

Case study: Hungary’s relative competitiveness in the 2000s

Outline

• Interpretation of international competitiveness (return to some previous questions)

• Questions regarding HU’s competitiveness in the 2000s

• Foreign market share, import penetration performance on EU-markets and the results of the CMS-analysis

• Price and volume indices and UV-levels

• Concluding remarks

• Statistical sources : Eurostat, AMECO, UN National Accounts Database

3

Approach

•

– Foreign trade statistics and national accounts, rather than micro-data

• Descriptive

– What happened?

– Tentative answers to: ”why?”

• (has to be supported by analysis from the micro-side)

– No policy recommendations regarding ways to improve competitiveness – As a first step, actual developments have to be described.

Two quotations

”Economists, in general, do not use the word ‘competitiveness’. Not one of the textbooks in international economics I have on my shelves contains the word in its index.”

(P. Krugman: Making Sense of the Competitiveness Debate – 1996)

”Exchange rates had to be adjusted to assure competitiveness. Only then could the virtues of markets come into play.”

(P. Krugman: Paul Samuelson: The incomparable economist – 2009)

• Message

• The main problem with ”competitiveness”: it means too many things

• Once defined, is may be a useful concept

4

The problem with the concept of competitiveness

• Propositions regarding international competitiveness are mixed up with propositions regarding overall performance of economies

• Competitiveness is mixed with issues regarding – Level of taxation

– Expenditures on R+R – etc.

• Before using the term ”competitiveness” is used, it has to be defined

• But first

– A dead end – A wrong path

Dead end: competitiveness (of nations) is an empty concept

• Krugman (I): ”obsession”

• ”At most productivity” (Porter etc.)

• Counter argument: Krugman (II)

”It’s OK to talk about competitiveness when you’re specifically asking whether a country’s exports and import-competing industries have low enough costs to sell stuff in competition with rivals in other countries; measures of relative costs and prices are, in fact, commonly – and unobjectionably – referred to as competitiveness indicators.”

http://krugman.blogs.nytimes.com/

5

• The point is:

– Some countries gain, some others loose share in international markets  the question/concept is relevant.

– If the concept is termed empty by economists, it will be filled by ”stuff” by others.

A wrong path: competitiveness ”overall macro-performance”

• See e.g. World Economic Forum Global Competitiveness Report:

”We define competitiveness as the set of – institutions,

– policies, and

– factors that determine the level of productivity of a country.

The level of productivity, in turn, sets

– the sustainable level of prosperity that can be earned by an economy.

– In other words, more-competitive economies tend to be able to produce higher levels of income for their citizens.”

• In this approach competitiveness is mixed up with the concept of potential/sustainable growth of economies.

6

A suggested definition

• Competitiveness means the revealed¹ international performance of countries – Mainly: export performance

– In addition: performance of domestic industries at the home market

• It may also mean factors contributing to international performance – RER-indices (price/cost competitiveness);

– Other (non price/cost factors of competitiveness (magnitude: empirical question)

Implications 

Implications of the suggested definition

International competitiveness should not be identified with

• the overall relative performance of the economy:

– Growth of GDP – Productivity – ”Well being”

• External imbalances

1 Analogy: ”revealed comparative advantage” (Balassa, 1963)

7

Why is the distinction between overall and external performance important?

• E.g. Hungary

– 1996–2000: rapid growth, moderate improvement in ”well being”, strong improvement in external performance

– 2001–2005: rapid growth, sizable improvement in ”well being”, but:

unsustainable fiscal expansion

– 2006–2008: fiscal correction (falling domestic demand)  slow-down in economic growth

• 2001–2005: improving competitiveness?

• 2006–2008: deteriorating competitiveness?

• Overall performance and competitiveness have to be distinguished

Further distinction: competitiveness has no direct relation with external balance

• External imbalances: mirror of internal imbalances, e.g.:

– CA= S–I;

– X-M = (GDP – domestic absorption)

• Competitiveness:

– external (internal?) market share

• BUT: the two may have common parts, e.g.:

• Illustration

8

Real and price level convergence (EU- 15=100, left axis) and net exports/GDP (%,

right axis)

Relative GDP and export performance at constant prices

20 30 40 50 60 70 80

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 -8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

CZ GDP/cap CZ_PPP/E CZ_NX

40 45 50 55 60 65

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 -10%

-8%

-6%

-4%

-2%

0%

2%

4%

HU_GDP/cap HU_PPP/E HU_NX/GDP

30 35 40 45 50 55 60

1991 1992

1993 1994

1995 1996

1997 1998

1999 2000

2001 2002

2003 2004

2005 2006

2007 -7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

PL GDP/cap PL_PPP/E PL_NX

30 35 40 45 50 55 60 65

1991 1992

1993 1994

1995 1996

1997 1998

1999 2000

2001 2002

2003 2004

2005 2006

2007 -12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

SK_GDP/cap SK_PPP/E SK_NX/GDP

9

Relative GDP (”overall”) and export

performance at constant prices (3 periods)

The relation between revealed competitiveness and RER

• In principle (and – mostly – in practice) the appreciation of RER results in a loss of competitiveness ( fall in external market share)

• Occasionally the case is the opposite  ”Kaldor-paradox” (1978):

– 1960–70s: Kaldor emphasized the role of „qualitative competitiveness”

– In EU-NMS (until 2008) ”catching up” RER-appreciation (BS-effect and others)

– Developments in the EU-27?

10

Four indicators of real appreciation and relative export performance, EU27 constant

prices 1996–2000 (annual average %-

change)

11

Four indicators of real appreciation and relative export performance, EU27 constant

prices

2001–2008 (annual average %-change)

For the 2000s: the ”paradox” is due to EU- NMS [CEE]

• For old EU-countries no paradox (CEE-dummy removes the positive relationship)



• BUT: CEE-effect is different from original Kaldor paradox – a mix of:

12 – Catching up (BS-) effect,

– Correction of initial undervaluation,

– Some ”qualitative competitiveness” (structural change)

Relative export performance and REER

indices in the EU27

13

Hungary’s external performance in the 2000s as compared to the 1990s and V3

• External and internal market share

• Export growth

– Volume, prices, terms of trade (T/T)

– The value-index of exports – a competitiveness indicator?

• Regional structure of exports

• Regional developments in prices and T/T

Two interpretations

• HU’s competitiveness worsened, e.g.

– Export prices

– Regional reorientation – (…)

• HU’s competitiveness did not deteriorate, e.g.

– Increased market shares in real terms – Decreased dependence on EU15 markets – (...)

• Impossible to decide: indications of both

• Difficult to explain: difference between developments at constant vs. current prices

14

Relative export performance at constant (x axis) and current prices (y axis)

1996–2000 and 2001–2008

15

Topics to be covered

• Market shares

• ”Qualitative competitiveness”

• CMS-analysis

• Price and volume indices

Shares in world imports and aggregate demand

• World imports – current

– constant prices

• ”Import-penetration” [dM/(d(BF+X)]

– Relevant at constant prices

• Net effect

Source: UN National Accounts database

External market share at current and

constant prices: 1995–2007 (%-change)

16

”Import penetration” (import/total demand) at current and constant prices: 1995–2007

(%-change)

The ”net effect” at current and constant

prices: 1995–2007 (%-change)

17

Qualitative/institutional competitiveness

• ”Revealed:”  residuals of cross-section export equations

• Results of international surveys

Residuals of equations explaining relative export performance

• X-performance-index = a +b(RER-index) +c(CEEU-dummy) + ε

• Period: 2000-08 and 2005-08, for EU-26

• Only equations with REER_Px and és a REER_ULCm (+ CEEU-dummy) are significant

• Residuals may be indications of non-price (qualitative) competitiveness

• Next chart: V-5 countries

Residuals of export-equations:

2000–2008 and 2005–2008

18

The popular approach: (example) WEF- GCR: rankings

Foreign market shares excluding and including intra-EU trade – goods

Intra-EU-val

0,0 0,2 0,4 0,6 0,8 1,0 1,2

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 CZ

HU PL SK Intra-EU nélkül

0,00 0,05 0,10 0,15 0,20 0,25 0,30 0,35

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 CZ

HU PL SK

19

Regional composition of exports (the share of intra and extra EU-trade in % of total

trade of countries)

Ratio of actual trade to potential with the

euro area

20

Shares in EU-25 exports: goods, services and total at current prices (EUR): 1995-

2008 (in %)

21

Shares in EU-25 exports: goods, services and total at prices of 2000

1995–2008 (in % – left pane), and the difference between shares at current and

constant prices

(in %-points – right pane)

22

CMS: constant market share analysis

Idea: decomposition of export-growth into three main components:

Market-growth Structural effect Competitiveness

Decomposition (in %)

23

Decomposition contributions in intra-EU imports and extra-EU exports (in %)

Price and volume changes

• EA-12

• Non EA-EU (NMS+)

• Extra EU-25

1999–2003 2003–2008

Maket growth Structural Competitiveness Maket growth Structural Competitiveness

effect effect

Components of CZ 34,9 –1,6 66,8 39,2 –2,7 63,5

X-increment PL 29,4 0,4 70,2 39,7 0,7 59,5

vs. intra-EU HU 41 –4,1 63,1 56,9 –15,7 58,8

imports SK 27 0,3 72,7 26,7 –0,2 73,5

Total V4 33,3 –1,2 67,9 39,9 –3,3 63,3

Components of CZ 36,4 –1,3 64,8 27,5 –1,5 74

X-increment PL 32,6 –0,7 68,1 24,8 –0,7 75,8

relative to extra-EU HU 38,4 –1,7 63,3 27 0,1 72,9

exports SK 16,7 –1,5 84,8 29 –1,2 72,2

Total V4 32,4 –1,2 68,8 26,5 –0,7 74,2

24

Price and volume indices in 3 relations:

exports (2000–2007; 2000=100)

2007

2006

2005

2004

2003 2002

2001 100

150 200 250 300 350 400

85 90 95 100 105 110 115 120 125 130

CZ_Xvol_extra_eu25 HU_Xvol_extra_eu25 PL_Xvol_extra_eu25 SK_Xvol_extra_eu25 Volumen

Egységérték

2007

2006

2004 2005

2003 2002 2001 2007

2006 2005 2004 20022003

2001 100

120 140 160 180 200 220 240 260

90 95 100 105 110 115 120 125 130

CZ_xvol_ea12 HU_Xvol_ea12 PL_Xvol_ea12 SK_Xvol_ea12

Egységérték Volumen

2007

2006

2005

2004

2003 2002

2001 100

150 200 250 300 350 400 450

90 95 100 105 110 115 120 125 130

CZ_Xvol_eu_not_ea HU_Xvol_eu_not_ea PL_Xvol_eu_not_ea SK_Xvol_eu_not_ea Volumen

Egységérték

25

Price and volume indices in 3 relations:

imports (2000-2007; 2000=100)

2007

2006 20042005

2003 2002

2001 100

120 140 160 180 200 220

85 95 105 115 125 135

CZ_Mvol_extra_eu25 HU_Mvol_extra_eu25 PL_Mvol_extra_eu25 SK_Mvol_extra_eu25 Volumen

Egységérték

2007 2006 2005 2004 20022003 2001 100

120 140 160 180 200 220 240 260

95 100 105 110 115 120 125 130

CZ_Mvol_ea12 HU_Mvol_ea12 PL_Mvol_ea12 SK_Mvol_ea12 Volumen

Egységérték

2007 2006

2005 2004 2003

2002 100 2001

120 140 160 180 200 220 240 260 280 300 320

95 100 105 110 115 120 125 130 135 140

CZ_Mvol_eu_not_ea HU_Mvol_eu_not_ea PL_Mvol_eu_not_ea SK_Mvol_eu_not_ea Volumen

Egységérték

26

Terms of trade and indices of volume ratios:

exports/imports (2000–2007)

2001 2002

2003 2004 2006 2007

2001 2002

2004 2005 2007

20012002 2003 2004 2005

2006 2007

2001 2002

2003 2004

2005 20062007

70 90 110 130 150 170 190 210

80 85 90 95 100 105 110 115 120

CZ_VR_extra_eu25 HU_VR_extra_eu25 PL_VR_extra_eu25 SK_VR_extra_eu25

Cserearány X_vol/M_vol

2001 2002

2003

2004 2005 20062007 2001

20022003

2004 2006 2007

2001 2003

20042005 2007

2001 2002 2003

2004

2005 2006 2007

80 85 90 95 100 105 110 115 120

90 95 100 105 110

CZ_VR_ea12 HU_VR_ea12 PL_VR_ea12 SK_VR_ea12

Cserearány X_vol/M_vol

2001 20032002 2004 2006 2005

2007

2001 2002 2003 2004 2005 2006 2007

2001 2002 2003

2004 2005

2006 2007

20022003 2001 2004 2006 2007

80 90 100 110 120 130 140 150 160 170

80 85 90 95 100 105 110

CZ_VR_eu_not_ea HU_VR_eu_not_ea PL_VR_eu_not_ea SK_VR_eu_not_ea

Cserearány X_vol/M_vol

27

A possible explanation for HU’s relative performance in the 2000s: the timing of FDI-

inflows

Total FDI stock relative to total GVA (left pane) and manufacturing FDI stock relative to manufacturing FDI (right pane) between 1998 and 2008

Structural changes – due to FDI inflows – characterising the V3 countries in the 2000s began earlier in HU

However, this is very far from the full explanation for the differential performance of the V4 countries in the 2000s

Ideas regarding further explanations?

10%

20%

30%

40%

50%

60%

70%

80%

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Csehország Magyarország Lengyelország Szlovákia

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

110%

120%

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Csehország Magyarország Lengyelország Szlovákia