Table of Contents

Currency and Competitiveness in Europe

Currency and Competitiveness in Europe

Edited by Klaus Liebscher, Josef Christl, Peter Mooslechner and Doris Ritzberger-Grünwald

This book combines currency matters with competitiveness considerations, with a view to raising the understanding of exchange rate dynamics and to analysing the role of exchange rates in reinforcing economic competitiveness.

Chapter 15: Product Quality and International Competitiveness in the New Member States of the EU

Deniz Igan

Subjects: economics and finance, financial economics and regulation, industrial economics, money and banking

Extract

1 Deniz Igan2 INTRODUCTION 15.1 Of the new members entering the European Union (EU) in May 2004, several had achieved a decade of impressive export growth, expanding significantly their shares of world markets. What factors lay behind this performance? This chapter places in international context the achievements of the eight Central and Eastern European countries (the CEE-8).3 Though the timing and pace varied, the gains in market shares are evident for six of these eight countries (Figure 15.1); only Slovenian and Latvian market shares remained relatively flat. In benchmarking this performance, the goal of the chapter is to help identify more broadly the determinants of international competitiveness. The puzzle is that the market share gains by the CEE-8 were achieved despite the appreciation of real exchange rates (Figure 15.1). Of course, the bivariate relationship between real exchange rates and evolution of market shares does not control for other developments during this period. Nevertheless, the question does arise: is the real exchange rate irrelevant? If not, what other factors compensated for the appreciation to explain the apparently strong competitiveness of these economies? And will these favorable factors continue to power export growth? The key to the puzzle is that a structural transformation was also achieved during this period. This transition from planned economic systems was accompanied by extensive privatization and restructuring, alongside the dismantling of trade barriers and the inflow of foreign direct investment. Forced to compete with international producers, domestically and in foreign markets, firms in the...

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