Navigating competitiveness in Mediterranean countries: drivers of manufacturing exports by technological intensity

Abstract

The financial crisis of 2008 and the subsequent economic slowdown pushed the Mediterranean economies – Greece, Italy, Portugal, and Spain – to place particular reliance on exports as a driver of recovery. To do so, these countries implemented a series of reforms aimed at strengthening their international competitiveness and at narrowing the divide with Germany, the benchmark for trade performance. Against this backdrop, we examine the evolution of relevant competitiveness indicators and empirically assess how they have influenced the export of manufactured goods (timespan: 1995–2018). We discern two distinct dimensions of competitiveness, encompassing, on the one hand, prices and labour costs, and on the other hand, non-price elements. Our analysis features two noteworthy characteristics: first, we explore the manufacturing sector by categorising it based on technological intensity; second, we employ a vertically-integrated subsystem approach. Despite the reduction in the gap with the ‘leading’ economy, we document the persistence of a substantial disparity in competitiveness between Mediterranean countries and Germany, extending beyond the high-tech segment of manufacturing. Moreover, our econometric evidence highlights the importance of quality (and complexity differentials) in intercepting foreign demand, while challenging the view that cost competition is only relevant for less sophisticated sectors.