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PRICE AND NON-PRICE COMPETITIVENESS OF EXPORTS OF MANUFACTURES

Panayiotis P. Athanasoglou
Bank of Greece

Ioanna C. Bardaka
Bank of Greece

ABSTRACT

This paper develops a demand function for Greece’s exports of manufactures according to New Trade Theory. The sample covers a rather long period of four decades with exports aggregated based on industrial rather than on trade classification. The study contributes to a better understanding of the effects of export prices, domestic and competitors’, as well as of non-price competitiveness approximated with capital stock, on export performance. The empirical estimation uses the Johansen maximum likelihood approach in the long run and a dynamic errorcorrection equation in the short run. The estimated long-run and short-run relationships follow the economic theory and are remarkably stable. It is shown that non-price competitiveness plays a vital role in explaining export performance in the long run as well as in the short run and that failure to include it in the export equation may lead to mis-specification error. As opposed to conventional models of export demand where income effects are very high, in the present study foreign income has a moderately high effect on exports in the long run and no effect in the short run. Exports are also sensitive to domestic and competitors’ prices in the long run, but cost and price competitiveness elasticities are close to one, indicating that Greek exporters have some ability to compete on the basis of prices.

Keywords: Export demand; price and non-price competitiveness; new trade theory; vector autoregressive error correction model

JEL classification: C22; F12

Acknowledgements: The authors would like to thank Heather Gibson, Theodora Kosma and Evaggelia Georgiou for important comments and suggestions. The views expressed in this paper are those of the authors and do not necessarily reflect those of the Bank of Greece.

Correspondence:

Panayiotis P. Athanasoglou
Economic Research Department,
Bank of Greece, 21 El. Venizelou St.,
102 50 Athens, Greece,
Tel. +30210-3202449,
Fax +30210-3202696
Email: pathanasoglou@bankofgreece.gr


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