Download publication

Blueprint

Measuring competitiveness in Europe: resource allocation, granularity and trade

This new Bruegel Blueprint provides a differentiated understanding of growth, productivity and competitiveness and the important role public policy needs to play.

By: and Date: January 28, 2016 Topic: European Macroeconomics & Governance

Executive summary

One of the most important lessons learned during the 2008-09 financial crisis was that the informational toolbox on which policymakers base their decisions about competitiveness became outdated in terms of both data sources and data analysis. The toolbox is particularly outdated when it comes to tapping the potential of micro data for the analysis of competitiveness – a serious problem given that it is firms, rather than countries that compete on global markets.

This Blueprint provides some concrete examples from recent advances in the analysis of competitiveness. The book is organised around European Central Bank Governor Mario Draghi’s definition of a competitive economy as one in which “institutional and macroeconomic conditions allow productive firms to thrive and in turn, the development of these firms supports the expansion of employment, investment and trade”. This point of view led us to highlight throughout the book the role of a small number of highly-productive firms as drivers of competitiveness at the country and industry level and, associated with that, the relevance for economic growth of the extent to which an economy is able to reallocate labour and capital towards those more-productive firms. Equally important is the context in which these productive firms operate, and thus the significance of developments in international trade and international fragmentation of production through the changing patterns of global value chains.

There are four main implications for policy from the work outlined in the chapters of this Blueprint:

(1) A few large, very productive and internationally active firms have a great influence on the performance and growth potential of countries, regions and sectors. As a result, average measurements, which are the parameters on which most policies are generally based, do a poor job of grasping the actual level of competitiveness within countries (regions) and between them. Hence, similar sets of policy dictated ex-ante by similar average competitiveness measures at the country level (eg unit labour costs) might end up producing very different outcomes ex-post, because of the underlying 1 heterogeneity of firm performance in the different countries.

(2) Rigidities in the labour market affect different firms in different ways and generate a misallocation of resources that has a significant effect on competitiveness and employment. In particular, centralised wage-bargaining institutions seem to be associated with a greater share of companies reducing the number of employees during economic downturns. Labour market reforms that allow wages to be aligned to heterogeneous levels of firm productivity are thus key to fostering a proper allocation of economic resources and, through this channel, a significant improvement in competitiveness and growth.

(3) Exporting, and more broadly international activities, is another key feature of competitiveness. Being active on global markets is closely associated with innovation and growth. An important element for national competitiveness is the extent to which institutional conditions allow firms that are currently not exporting to grow to levels of productivity that enable them to tap into international markets. In addition to exporting to unrelated parties, the emergence of global value chains suggests that selling to multinationals at home or the ability to build up a chain of suppliers are equally important and policy-relevant channels. In turn, as the changing pattern of global value chains is a significant driver of export growth, it is important to work at both the multilateral and bilateral level (eg the Transatlantic Trade and Investment Partnership, TTIP) to foster trade facilitation and the reduction of non-tariff barriers.

(4) The chapters of this book relied on either novel datasets, or novel analytical methodologies, or both, and contributed to the development of measures on which future analyses might be based. Developing datasets using firm-level data, matching company information with trade data, deriving evidence about global value chains or elaborating the quality of products will all help better identify competitiveness. Harmonisation of national efforts, and creation of EU-wide datasets are crucial in order to develop and test new measures that policymakers can use in the future.

View comments
Read about event More on this topic

Upcoming Event

Jun
8
12:30

Cancelled - What should be Greece's next growth model?

Due to unforeseen circumstances, we will have to cancel this event. More information to follow.

Speakers: Kuriakos Mitsotakis and Guntram B. Wolff Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read article More on this topic More by this author

Blog Post

Silvia Merler

The US and the productivity puzzle

What’s at stake: Productivity growth fell sharply following the global financial crisis and has remained sluggish since, inducing many to talk of a “productivity puzzle”. In the US, we may be seeing what look like early signs of a reversal. We review recent contributions on this theme.

By: Silvia Merler Topic: Global Economics & Governance Date: May 8, 2017
Read article More on this topic

Blog Post

Uuriintuya Batsaikhan
Zsolt Darvas

Europeans rediscover enthusiasm for globalisation

The general political mood on both sides of the Atlantic seems to suggest declining public support for globalisation, but people in the EU increasingly see globalisation as an opportunity for economic growth. This shift in public opinion coincides with improved economic conditions.

By: Uuriintuya Batsaikhan and Zsolt Darvas Topic: European Macroeconomics & Governance Date: May 4, 2017
Read article More on this topic More by this author

Blog Post

Lagarde picture

Building a more resilient and inclusive global economy

Curtain raiser speech ahead of the 2017 IMF Spring Meetings delivered at Bruegel by the Managing Director of the International Monetary Fund.

By: Christine Lagarde Topic: Global Economics & Governance Date: April 12, 2017
Read article Download PDF More on this topic

Working Paper

WP 2017_04 cover

From start-up to scale-up: examining public policies for the financing of high-growth ventures

What are the challenges of financing scale-ups, and how can long-term public policies support the creation of a better scale-up environment?

By: Gilles Duruflé, Thomas Hellmann and Karen E. Wilson Topic: Innovation & Competition Policy Date: April 10, 2017
Read article More on this topic More by this author

Blog Post

Uuriintuya Batsaikhan

Embracing the silver economy

What’s at stake: The oldest human in known history was a Frenchwoman called Jeanne Calment who celebrated her 122nd birthday in 1997. Thanks to advances in technology and medicine humans living until 100, if not 122, might not be an exception in the near future. Ageing, while described as a looming demographic crisis, also offers a silver lining. Business in rapidly ageing societies is already adapting their strategies to navigate the “silver economy”. This blogs review looks at the implications of the silver economy on growth, productivity and innovation as well as the opportunities offered by the silver industry.

By: Uuriintuya Batsaikhan Topic: Global Economics & Governance Date: April 10, 2017
Read about event More on this topic

Past Event

Past Event

Can EMU survive a multi speed Europe?

On 6 April Bruegel, as in previous years, hosted the presentation of the Euro Yearbook, a collection of experts’ insights on the construction of the European Monetary Union through 2016.

Speakers: Pablo Zalba Bidegain, Maria Demertzis, Fernando Fernandez, Javier Méndez Llera, Karl Pichelmann and Guntram B. Wolff Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: April 6, 2017
Read article More on this topic

Blog Post

Alicia García-Herrero

Who would bet on currency unions after EMU crisis?

The European Monetary Union (EMU) was founded with the idea that nominal convergence would bring real convergence, but structural differences between members have proven wide enough to generate lasting asymmetric negative shocks across the euro area.

By: Alicia García-Herrero and David Martínez Turégano Topic: Global Economics & Governance Date: March 29, 2017
Read article Download PDF More on this topic

Policy Contribution

Capture

Making the best of the European single market

Now more than ever, the EU needs to address concerns about the significant decline in productivity growth and the increasing perception of unfairness. Completing the single market would unlock the EU's growth potential. At the same time, the EU should empower member states to fight inequality by helping them better distribute the gains arising from economic integration.

By: Vincent Aussilloux, Agnès Bénassy-Quéré, Clemens Fuest and Guntram B. Wolff Topic: European Macroeconomics & Governance Date: February 2, 2017
Read article More by this author

Opinion

Alicia García-Herrero

South Korea and Indonesia: a capital match

Mutually beneficial Jakarta-Seoul relationship could develop further with an upgrade in Jakarta’s sovereign debt.

By: Alicia García-Herrero Topic: Finance & Financial Regulation, Global Economics & Governance Date: November 23, 2016
Read article More on this topic More by this author

Blog Post

Silvia Merler

Income convergence during the crisis: did EU funds provide a buffer?

Did EU funds play an important role in limiting the hit of the crisis on regional income?

By: Silvia Merler Topic: European Macroeconomics & Governance Date: November 10, 2016
Read article Download PDF More on this topic More by this author

Working Paper

wp-06-16_page_01

Income convergence during the crisis: did EU funds provide a buffer?

This paper shows that economic convergence continued during the crisis for the EU as a whole, although at a slower pace, but for regions in the EU14, and especially in the euro area, convergence appears to have stopped during the crisis, or even switched to a divergence path.

By: Silvia Merler Topic: European Macroeconomics & Governance Date: October 18, 2016
Load more posts