Academic journal article Baltic Journal of Economics

Competitiveness of Latvia's Exporters

Academic journal article Baltic Journal of Economics

Competitiveness of Latvia's Exporters

Article excerpt

Abstract

This paper evaluates the competitiveness of Latvia's exporters from various aspects by using detailed trade data from UN Comtrade. Competitiveness represented by the market share of Latvia's products in world trade was on a rising trend, growing almost two times between 1999 and 2010. This dynamic improvement was mainly accounted for by intensive margin, as Latvia's exporters increased their presence on traditional markets. Moreover, the contribution of extensive margin was also positive due to geographical expansion. Analysis of non-price competitiveness signals that although Latvia's export unit values were increasing faster than those of its main competitors, relative quality and taste for Latvia's products were rising even faster, and, overall, the competitiveness of Latvia's exporters improved.

Keywords: C43, F12, F14, L15

JEL classification: exports, extensive margin, intensive margin, non-price competitiveness, Latvia

(ProQuest: ... denotes formulae omitted.)

1. Introduction

Despite the scope of discussion and empirical work on the topic, the concept of competitiveness is still elusive. The definition of competitiveness is so broad that it includes an extremely large set of macroeconomic and microeconomic issues: per capita income levels, performance of institutions, levels of productivity, comparative costs, and many others not mentioned here. As a result, the number of ways a researcher can evaluate the competitiveness of a country is vast. This paper is restricted to only a few approaches, which can be applied to highly disaggregated trade data. Thus we are narrowing the definition of competitiveness to the one given by the OECD: "Competitiveness is a measure of a country's advantage or disadvantage in selling its products in international markets"3, and concentrate on the performance of Latvia's exporters.

The motivation for focusing on export activities is obvious: Latvia is a very open and extremely small economy, where exports are the main source of economic growth in the long run. Our research is by no means a unique attempt to discuss the competitiveness of Latvia's exports. However, some empirical papers are already outdated and observe years before accession to the EU (e.g. Dulleck et al., 2005, or Fabrizio et al., 2007), some relate competitiveness issues mostly to effective exchange rates (e.g. Purfield and Rosenberg, 2010), some do not cover all Latvia's exports (Benkovskis and Wörz, 2012). Therefore, the need arises to update the assessment of competitiveness and to broaden the set of available indicators.

Are Latvia's products gaining export market shares? Are exporters doing it by expanding in new markets or are they intensifying their presence in traditional markets? Who are the main competitors for Latvia's enterprises in external markets? Is the real effective exchange rate a complete measure of competitiveness? Can we assess non-price competitiveness of Latvia's enterprises? Our paper tries to address these questions. Detailed trade data from UN Corntrade allow us not to restrict analysis to some specific geographical area or subset of products, while disaggregation enables tracking the performance of separate sectors and to take into account structural differences. The important contribution to existing empirical literature is the decomposition of changes in export market shares into intensive and extensive margins. This paper modifies the methodology of Hummels and Klenow (2005) for dynamic analysis. We also evaluate non-price competitiveness of Latvia's total exports using UN Comtrade data. This analysis is performed using methodology recently developed by Benkovskis and Wörz (2012).

The next section illustrates the data, which are extracted from UN Comtrade. Section 3 then focuses on value data, decomposing market share changes into extensive and intensive margins as well as presenting a geographical breakdown of Latvia's main competitors. …

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