"A competitive economy, in essence, is one in which institutional and macroeconomic conditions allow productive firms to thrive. In turn, the development of these firms supports the expansion of employment, investment and trade" (Mario Draghi, 2012).
Our objective is to identify
This research is relevant for
In order to achieve our objective we address competitiveness issues, taking a broad perspective, encompassing macro, firm-level and cross-border aspects and exploiting cross-country information. These two aspects of CompNet – its multi-dimensional and cross-country approach to competitiveness – are what make it a unique forum for research.
The Competitiveness Research Network (CompNet) was established in March 2012. The network has participants from all EU national central banks, as well as from international organisations interested in competitiveness issues.
ECB Chairperson: Filippo di Mauro
Work stream 1: Konstantīns Beņkovskis, Latvijas Banka; Ettore Dorucci, European Central Bank; Pavlos Karadeloglou, European Central Bank
Work stream 2: Antoine Berthou, Banque de France; Paloma López-Garcia, European Central Bank
Work stream 3: João Amador, Banco de Portugal; Frauke Skudelny, European Central Bank
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CompNet is organised into three work streams:
Workstream 1 handles the macro-aggregate analysis, which relies on competitiveness measured at the country level. This includes all analyses aimed at explaining trade results that are dependent on price factors and non-price factors.
Research has shown that on the aggregate, macro side, additional "non-price" factors are confirmed as playing a key role in explaining trade results. CompNet has developed a number of indicators that are more sophisticated than the ones traditionally used for policy analysis. These indicators include:
Work stream 2 concentrates on research based on firm-level data. This analysis draws on the rather extensive literature, which includes a very high number of contributions by NCBs, assessing the relationship between the internationalisation of production, firm-level costs and productivity on the one hand, and additional firm characteristics, such as the financial position of the firm, on the other. The focus is on cross-country comparisons, as well as the interaction between firm-level and aggregate information.
CompNet research has confirmed the existence of significant heterogeneity in firms’ performance even within narrowly defined sectors in all countries. The dynamics in terms of employment creation or unit labour cost and total factor productivity growth are very different for low and high productivity firms, even when they are operating in the same industry. In order to make progress in this field, CompNet has created an active network of 13 country teams, which will soon be expanded to include four more. These teams are independently running a common algorithm to compute indicators related to sectoral labour and total factor productivity dynamics, unit labour costs and allocative efficiency; this approach was chosen in order to deal with firm-level data confidentiality.
Firm-level indicators highlight three main stylised facts:
These results imply that there is considerable potential to boost overall productivity by fostering the reallocation of resources within and across industries, over and above enhancing the productivity of incumbent firms.
Work stream 3 concentrates on the globalisation of production processes and its impact on traditional assessments of trade and competitiveness. The work stream has heavily drawn from databases and analyses developed in a number of international organisations, members of the network, which are leading in the field, such as the OECD, the United States International Trade Commission and the World Bank. Against this background, the work stream is currently working on the development of GVCs in Europe, as well as separating out the impact of GVCs on competitiveness assessments.
At the cross-border level, CompNet research aims at examining the impact of integration within global value chains (GVCs) on the assessment of competitiveness. CompNet has functioned as a hub for databases and methodologies by collaborating with institutions worldwide that have conducted advanced research on constructing appropriate databases.
Focusing on European countries, CompNet has computed a number of indicators, including
The following specific research questions underline the work of CompNet and indicate the progress achieved so far.
Traditional macro indicators – mostly price/cost based – have increasingly exhibited lower explanatory power for trade developments and related imbalances. CompNet’s objective is to enhance the strength of indicators regularly used, drawing from three perspectives;
On the macro front, new indicators are being developed based on detailed six-digit product-level statistics, which mainly investigate non-price competitiveness aspects. On the micro front, efforts are being dedicated to the creation of a new database suitable for providing cross-country indicators on firm-level productivity and its drivers. At the cross-border level, new indicators break down the added value incorporated at various stages of production internationally in order to gauge the necessary changes in the traditional competitiveness assessment.
The ultimate aim is to create a comprehensive view of a country’s competitiveness by providing information from indicators at all levels of analysis: macro, micro and cross-border.
The ultimate aim of CompNet is to provide empirical and theoretical support for the link between outcomes and drivers at the macro, micro and cross-border levels.
At the macro level, a purely empirical exercise (based on a Bayesian Model Selection approach) is being undertaken to quantify the relative importance of various macroeconomic, structural and institutional indicators for trade outcomes. On the micro front, the following links are currently being investigated:
On the cross-border front, special attention is being paid to the impact on employment of participation in GVCs.
Accumulations of external imbalances and persistently diverging economic developments across Member States have a strong impact on the effectiveness of monetary policy across euro area countries. However, depending on their nature, external deficits are not necessarily a sign of a loss of competitiveness and may not require policy intervention (e.g. in the case of economies that are "catching up").
Currently CompNet research is investigating the complex link between competitiveness enhancement and the adjustment of macroeconomic imbalances, complementing traditional macro analysis with insights from firm-level data on productivity; furthermore, it places the problem of adjusting imbalances in the context of increasing integration in GVCs and an increased import content within exports.
A major aim of the Network is to underline the importance for policy to look at the shape of firm-level productivity distribution, rather than to the simple average. The main reasons are that the impact of a given shock might differ depending on the underlying distribution of firms’ performance. Moreover, existing high heterogeneity and skewness of firm distribution gives scope to enhance overall productivity via resource reallocation across firms. To this purpose, the research output consists first in developing synthetic indicators of allocative efficiency across countries and second in identifying the policies that can improve resource reallocation with minimum adjustment costs.
The ongoing projects aim at using the micro data that has been gathered to validate the available macro statistics. With our firm-level data we can improve the understanding of the dynamics that profit shares and mark-ups have created in some (periphery) countries since the beginning of the crisis. In addition, we can provide superior labour productivity levels and growth rates that do not suffer from the problems that stem from using aggregate figures. Furthermore, we can improve the forecasting power of macro models by using micro forecasts of productivity growth.
Against this background, a competitiveness diagnostic toolkit is currently being designed to serve monitoring and policy purposes; this toolkit comprises both macro and firm-level indicators that are able to shed light on the salient features of the European economies..
The ongoing CompNet work makes use of indicators based on added value (computed using global input-output tables) in order to assess the impact of GVCs on competitiveness outcomes, such as RCAs, employment and GVC income. Therefore, in this new light, a macro-mapping of trade patterns and partners within the euro area can be redrawn. A promising approach is to assess the drivers of GVC participation at the firm level.