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: Macroeconomic policy

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crisis was that the informational toolbox on which policymakers base their decisions about competitiveness became outdated in terms of both data sources and data analysis. The toolbox is particularly outdated when it comes to tapping the potential of micro data for the analysis of competitiveness – a serious problem given that it is firms, rather than countries that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.

Read about event More on this topic
 

Upcoming Event

Feb
17
09:00

A debate on fiscal rules and the new monetary strategy

Presentation of the Yearbook of the Euro 2022.

Speakers: Maria Demertzis, Fernando Fernández, Gonzalo García Andrés, José Carlos García de Quevedo, Pablo Hernández de Cos and Jorge Yzaguirre Topic: European governance
Read article More by this author
 

Opinion

European governance

The euro comes of age

A well-functioning euro reflects a degree of unity that allows the EU to credibly claim a position at the global table and therefore help shape the policies that will deal with global problems. That is a decisive success.

By: Maria Demertzis Topic: European governance, Macroeconomic policy Date: January 13, 2022
Read article More by this author
 

Opinion

European governance

The Euro at 20

The euro’s advocates hoped that the single currency would deliver economic and financial integration, policy convergence, political amalgamation, and global influence. While these predictions were often wide of the mark, the euro has arguably proven to be a wise investment.

By: Jean Pisani-Ferry Topic: European governance, Macroeconomic policy Date: January 3, 2022
Read article
 

External Publication

European governance

EU borrowing—time to think of the generation after next

Financing post-pandemic recovery via EU borrowing has proved remarkably straightforward. So why keep it temporary?

By: Grégory Claeys, Rebecca Christie and Pauline Weil Topic: European governance, Macroeconomic policy Date: December 9, 2021
Read about event
 

Past Event

Past Event

Future of work and inclusive growth: Digital dialogues

An end of year series of digital discussions on the Future of Work and Inclusive Growth in Europe.

Speakers: Janine Berg, Arturo Franco, Stijn Broecke, Esther Lynch, Mario Mariniello, Laura Nurski, Leah Ruppanner, Nicolas Schmit, Kim Van Sparrentak and Tilman Tacke Topic: Digital economy and innovation, Inclusive growth Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: December 7, 2021
Read about event
 

Past Event

Past Event

China’s medium term outlook: Will innovation save China from becoming old before it becomes rich?

What can China do to stop the deceleration of its economy. Is innovation the solution?

Speakers: Jean-Francois Di Meglio, Alicia García-Herrero and Guntram B. Wolff Topic: Digital economy and innovation, Global economy and trade Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: December 1, 2021
Read article Download PDF More on this topic More by this author
 

External Publication

Chinese economic statecraft: what to expect in the next five years?

Chapter from 'Storms Ahead: the Future Geoeconomic world order' on the expectations from the next five years of Chinese economic policy, published on 27 October 2021.

By: Alicia García-Herrero Topic: Global economy and trade Date: November 26, 2021
Read article More by this author
 

Opinion

European governance

Growth and inflation after the pandemic in the EU

Countries hit comparatively hard during the financial crisis, helped also by domestic and European policies, are bouncing back from the pandemic faster than their peers.

By: Maria Demertzis Topic: European governance, Macroeconomic policy Date: November 18, 2021
Read article Download PDF
 

Policy Contribution

European governance

Next Generation EU borrowing: a first assessment

The Next Generation EU programme is radically changing the way the EU finances itself and interacts with financial markets. This paper assesses the first design decisions made by the European Commission and the issuances that have taken place so far. It also outlines the potential risks and opportunities linked to this upgrading of the EU borrowing.

By: Rebecca Christie, Grégory Claeys and Pauline Weil Topic: Banking and capital markets, European governance, Macroeconomic policy Date: November 10, 2021
Read about event More on this topic
 

Past Event

Past Event

European monetary policy: lessons from the past two decades

This event will feature the presentation of “Monetary Policy in Times of Crisis – A Tale of Two Decades of the European Central Bank."

Speakers: Petra Geraats, Wolfgang Lemke, Francesco Papadia and Massimo Rostagno Topic: Macroeconomic policy Date: November 4, 2021
Read article
 

Blog Post

European governance

Is the risk of stagflation real?

Most economic forecasts predict a return, in the medium-term, to pre-pandemic growth and inflation. Nevertheless, the European Central Bank and fiscal authorities need to be vigilant for signs of the contrary.

By: Monika Grzegorczyk, Francesco Papadia and Pauline Weil Topic: European governance, Macroeconomic policy Date: November 2, 2021
Read article More on this topic
 

Blog Post

Strong, balanced, sustainable and inclusive growth? The G20 and the pandemic

The G20 is not doing enough to support strong, balanced, sustainable and inclusive growth in the wake of COVID-19, with the poorest countries left behind by the recovery.

By: Suman Bery and Pauline Weil Topic: Global economy and trade Date: October 29, 2021
Load more posts