Cost, innovation and quality competitiveness : What
lessons for international trade of OECD countries ?
H. BEN HASSINE (France Stratégie) &
C. MATHIEU (ERUDITE - Université Paris-Est Créteil & France Stratégie)
French Competitiveness : New challenges, New measures
Paris, 16/12/2015
Plan
Motivation
Model and empirical strategy
Data
Results
Conclusion
H.BEN HASSINE
French Competitiveness
December 2015
2 / 20
Motivation
Several factors explain the competitiveness gap between
developed countries
The most common causes cited in the literature :
I Unsuccessful sector specialisation (Cheptea et al., 2014) and unfavorable
geographical location (Felettigh et ali., 2006)
I resources misallocation (Bas et ali, 2015)
I Price competitiveness (labor, capital, intermediate consumption, mark-up, etc.)
(Le Moigne et Ragot, 2015)
I Non-price competitiveness (Khandelwal, 2010)
The determinants of the non-price competitiveness (quality, innovation, design,
brand image, distribution networks, customer service, etc.) also contribute to
explain the export performances.
H.BEN HASSINE
French Competitiveness
December 2015
3 / 20
Motivation
Price competitiveness VS non-price competitiveness
European Commission (2010) shows that the price-competitiveness explains less than
40% of the change in export performances of the Euro zone countries.
Similarly, INSEE (2013), indicates that most of the export change of the European
economies is explained by non-price competitiveness
Issues :
I Most of the studies focus on one of these two types of competitiveness
I The non-price competitiveness is not easily measurable concept
Methodologies :
I Revealed preference theory (Aiginger, 1997)
⇒ Drawback : limited on countries
pair flows.
I Export price indices as quality indices (Hallak, 2006)
⇒ Drawback : reflect
production costs, amongst other things
I Residual approach : Quality is the idiosyncratic term of the import demand
function (Khandelwal, 2010) ⇒ Drawback : Prices reflect also quality
H.BEN HASSINE
French Competitiveness
December 2015
4 / 20
Motivation
Innovation as a measure of quality
I
Innovation is one of the three subindexes used to calculate the Global
Competitiveness Index of the annual Global competitiveness Report.
I
Chen (2013) shows that innovation (proxy of product quality) increases
exporters’ intensive and extensive margins
I
Hall, Lotti & Mairesse (2009) show that the most innovative Italian SMEs
have the highest turnover of new products introduced on the national
market over the 1995-2003 period
I
Different measures of innovation (R&D, Patents, etc.) have similar effects
on trade (Wakelin, 1998 ; Anderton, 1999)
I
Similar effects of quality image and innovation image (Crozet and
Erkel-Rousse, 2004)
H.BEN HASSINE
French Competitiveness
December 2015
5 / 20
Motivation
Issues and methodology
Issues
I Analyse the effects of the cost competitiveness and quality competitiveness
linked to innovation (R&D) on trade of the OECD countries over the 1998-2012
period.
I Quality is present both in prices and quantities
- What is the the share of quality in export price for the OECD
countries-sectors ?
- What are the cost (quality-adjusted price) and quality elasticities of
import demand within the OECD countries ?
Methodology : 2 stages
I Determine the export price adjusted for quality linked to innovation (ISIC rév4 -
2Digit R&D expenditures)
I Estimate the influence of quality linked to innovation and the cost
competitiveness on bilateral trade.
H.BEN HASSINE
French Competitiveness
December 2015
6 / 20
Model and empirical strategy
Econometric strategy
First stage
LogPist = α2 LogR &Dist −1 + α1 Dummy _LogR &Dist −1 + α0 + fis + ωist
AQ
Q
LogPist
= LogPist − LogPist
where
Q
LogPist
= α̂2 logR &Dist −1 + α̂1 Dummy _logR &Dist −1
I
The contribution of net quality in prices is effective if α̂2 > 0
Two other possible cases :
- α̂2 = 0 ⇒ No quality in prices
- α̂2 < 0 ⇒ Process innovation
H.BEN HASSINE
French Competitiveness
December 2015
7 / 20
Model and empirical strategy
Model
Second step
Second stage
Maximize the utility of a representative consumer under budget constraint. The
utility function is an augmented version of Dixit-Stiglitz (1977) structure of
preferences.
log (importijst )
=
β1 log (distij ) + β2 + log (Dij ) + β3 log (PIBit ) + β4 log (PIBjt )
|
{z
}
+
AQ
AQ 2
β5 log (Pist
) + β6 (logPist
) + β7 log (R &Dist ) + β8 (logR &Dist )2
+
AQ
AQ 2
β9 log (Pjst
) + β10 (logPjst
) + β11 log (R &Djst ) + β12 (logR &Djst )2
|
{z
}
+
β13 DummX + β14 DummM + β15 DummS + β16 DummT +εijst
|
{z
}
Control variables
Variables of interest
Dummy variables
H.BEN HASSINE
French Competitiveness
December 2015
8 / 20
Data
BACI - CEPII
I
Bilateral trade in volume (tonne) and export unite value (FOB) at the HS
6-digit products disaggregation (5000)
I
Distance, Border, common language, etc.
ANBERD - OCDE
I
Private R&D expenditures (Thousand US$)
I
ISIC/CITI rév4 nomenclature at 2 Digit (24% of missing data)
I
Keep observations collected for at least 3 consecutive years
World Bank
I
GDP (Thousand US$)
Overall, a non-balanced panel of 146261 observations (28 OECD countries, 20
sectors, over the 1998-2012 period)
H.BEN HASSINE
French Competitiveness
December 2015
9 / 20
Results
First step : The share of quality in prices
Results
I
The share of the quality in prices is about 40%, on average
I
The share of the quality in prices is significative in 14 sectors out of 20
- Namely, in 8 out of 13 sectors of low and medium technology and 6 out of
7 sectors of high and medium-high technology
I
On average, the share is less important in low and medium technology
sectors (24%) than in high and medium-high technology sectors (51%)
H.BEN HASSINE
French Competitiveness
December 2015
10 / 20
Results
First step : The share of quality in prices
TOP 10 OF COUNTRIES WITH HIGHEST SHARE OF QUALITY IN PRICES
59,25
58,15
57,89
56,13
56,00
55,48
55,08
54,87
54,33
52,60
JAPAN
USA
GERMANY
CANADA
SOUTH KOREA
FRANCE
SPAIN
AUSTRALIA
ITALY
BELGIUM
Author’s calculation
H.BEN HASSINE
French Competitiveness
December 2015
11 / 20
Results
First step : The share of quality in prices
The share of quality in prices for France and its main trading partners
Germany
France
Italy
UK
85,33
87,8
87
83,21
68,68 68,87
64,92
64,8
50,59
45,1
45,03
42,4
38,51
36,33
35,87
33,17
32,3
35,65
28,4
25,15
TEXTILES, WEARING, LEATHER
COMPUTER, ELECTRONIC AND
OPTICAL PRODUCTS
ELECTRICAL EQUIPMENT
MACHINERY AND EQUIPMENT
N.E.C.
MOTOR VEHICLES, TRAILERS
Author’s calculation
H.BEN HASSINE
French Competitiveness
December 2015
12 / 20
Results
First step : The share of quality in prices
First step
Top 3 of sectors for which France VS Germany are leaders in terms of
quality
France
90
6th
Germany
1st
90
4th
80
1st
80
4th
70
3rd
3rd 2nd
70
60
60
50
50
40
40
30
30
2nd
13th
3rd
2nd
10th
5th
3rd
12th
Machinery and
equipment n.e.c.
Rubber and plastics Electrical equipment
products
Germany
Other transport
equipment
Metal products
France
Basic metals
Germany
Motor vehicles,
trailers
Computer,
electronic optical
France
Author’s calculation
H.BEN HASSINE
French Competitiveness
December 2015
13 / 20
Results
Second step : Cost and quality competitiveness
Return
log PistNQ
 log P 
NQ 2
ist
log PjstNQ
 log P 
NQ 2
jst
log R&Dist 1
 log R&Dist 1 
2
log R&D jst 1
log R&D 
Dummy_ log R&Dist 1
Dummy_ log R&D jst 1
𝑁𝑄
̅̅̅̅̅̅̅̅̅̅
𝑙𝑜𝑔𝑃
𝑖𝑗𝑠
̅̅̅̅̅̅̅̅̅̅̅̅
𝑙𝑜𝑔𝑅&𝐷𝑖𝑠
Country FE
Sector FE
Year FE
Country/sector/year FE
Observations
R2
(2)
(3)
-0.802***
(-14.888)
-0.047***
(-2.927)
0.031***
(3.714)
0.017***
(10.015)
0.429***
(2.820)
-0.610***
(-7.483)
-0.104***
(-2.608)
-0.214
(-0.946)
0.017*
(1.752)
-
-0.019*
(-1.917)
1.593***
(2.816)
2.043*
(1.795)
-0.020***
(-3.013)
2.185***
(9.998)
2.197**
(2.550)
0.477
(0.339)
-
Yes
Yes
Yes
No
145708
0,773
Yes
Yes
Yes
No
145708
0,772
-1.082***
(-8.794)
0.014***
(7.376)
Yes
Yes
Yes
Yes
146,261
0.461
2
jst 1
H.BEN HASSINE
(1)
-0.794***
(-6.019)
-0.046***
(-2.783)
-0.073
(-1.590)
0.025***
(3.883)
-0.101
(-1.138)
0.021***
(6.274)
0.401*
(1.862)
French Competitiveness
December 2015
14 / 20
Results
Second step : Cost and quality competitiveness
Cost and quality
Cost and quality elasticities
0,51
0,43
0,41
0,40
0,47
0,46
0,43
0,47
Cost
Quality
0,40
-0,78
-0,78
-0,74
-0,82
-0,88
-0,88
-0,98
1st quartile
Median
France
H.BEN HASSINE
Total
French Competitiveness
-0,98
-0,94
3rd quartile
Germany
December 2015
15 / 20
Results
Second step : Cost and quality competitiveness
PERCENTAGE CHANGE OF R&D EXPENDITURES / QUALITY-ADJUSTED
PRICES FOR A 10% EXPORT INCREASE
H.BEN HASSINE
French Competitiveness
19,5
-10,7
-10,2
-10,2
Germany
Quality-Adjusted price
Total
21,4
21,9
-12,3
-11,4
-11,4
-13,6
-12,9
-12,9
France
21,4
3RD QUARTILE
23,3
23,3
24,2
24,9
MEDIAN
R&D Expenditures
24,9
1ST QUARTILE
December 2015
16 / 20
Conclusion
Conclusion
Main results of the paper
1. In average, quality linked to innovation explains 40% of prices
2. Price and quality effects are non linear :
- cumulative positive effect for quality
- opposite effect for quality-adjusted price
3. French products are less comparative in cost and quality than the German
products
H.BEN HASSINE
French Competitiveness
December 2015
17 / 20
Thank you for your attention
Annexes
First step : The share of quality in prices
Return
Agriculture, forestry and fishing
Food, beverage, tobacco
Textile, fur, leather
Pharmaceutical products
Rubber and plastics products
Basic metals
Metal products, except machinery and
equipment
Ordinateurs, articles électroniques et
optiques
Computer, electronic and optical products
Machinery and equipment n.e.c.
Motor vehicles, trailers and semi-trailers
Other transport equipment
H.BEN HASSINE
France
German
UK
Italy
25,70
28,25
22,33
17,13
21ème
7ème
2ème
13ème
63,00
62,80
61,10
60,37
4ème
5ème
10ème
11ème
35,87
32,30
36,33
25,15
11ème
3ème
23ème
5ème
100,00
93,62
100,00
92,36
5ème
18ème
5ème
20ème
81,67
78,97
77,50
76,55
1ère
4ème
5ème
8ème
46,47
53,69
38,20
46,28
10ème
3ème
18ème
12ème
50,53
57,84
46,65
52,40
13ème
2ème
19ème
8ème
33,17
38,51
28,40
35,65
12ème
3ème
21ème
7ème
68,87
68,68
64,80
64,92
3ème
4ème
8ème
7ème
87,80
85,33
87,00
83,21
1ère
6ème
3ème
8ème
45,10
50,59
42,40
45,03
5ème
2ème
10ème
6ème
68,27
67,84
64,90
65,57
2ème
3ème
6ème
4ème
French Competitiveness
December 2015
19 / 20
Annexes
Second step : cost and quality elasticities
Return
εDIMP /Pi = −0.802 − 0.094 × logPiAQ
εDIMP /Quali = 0.034 × logR &Di
 m/ P
 m/RD
-0,767
-0,867
-0,954
0,413
0,460
0,501
-0,775
-0,878
-0,977
0,402
0,429
0,468
-0,737
-0,815
-0,937
0,413
0,456
0,514
-0,763
-0,848
-0,935
0,377
0,410
0,450
-0,804
-0,892
-0,985
0,371
0,412
0,460
i
Total
1st quartile
Median
3rd quartile
France
1st quartile
Median
3rd quartile
German
1st quartile
Median
3rd quartile
Italy
1st quartile
Median
3rd quartile
United-Kingdom
1st quartile
Median
3rd quartile
H.BEN HASSINE
French Competitiveness
i
December 2015
20 / 20