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									Q-Tool Extension: Competitiveness

 1. Agenda

 2. Definitions and Indicators

 3. CGE Implementation

 4. Conclusions
1. Agenda

                                   • Firm level (cost structure, innovation potential, ...)
Specification of                   • Sectoral level (market shares, mark-ups, ...)
„Competitiveness“                  • Country level (terms-of-trade,...)

Review of existing indicator       • Input/output-based indicators
systems                            • Data availability

Compatibility with quantitative    • Implementation of indicators in CGE core-model
modeling framework                 • Illustrative policy application
                                     (here: EU leadership in climate policy)
2. Definitions and Indicators
                            Selected Definitions

Firm level:
• „A firm is competitive if it can produce products [...] of superior quality or
   lower costs than its domestic and international competitors.
   (US-President`s Commission on Industrial Competitiveness 1985, S. 6)

Sectoral level:
• ... Position of a sector in relation to other sectors or to the same sector in
   other countries in terms of market share and productivity.

National level:
• “Competitiveness [...] is understood to mean a sustained rise in the
   standards of living of a nation and as low a level of involuntary
   unemployment possible.”
   (European Competitiveness Report 2004)
                                        Indicators (1)

                            “ex-post”                           “ex-ante”

Based on:                 Output / Performance                 Input / Policy
                                                           •    R&D Expenditures
                      •     Market share
                                                           •    Stock of Human Capital
                      •     Profitability
Firm level:                                                •    Cost Structure
                      •     Productivity
                                                           •    Innovation Potential

                  •         (Relative) market shares -
                            RMS                            •   R&D expenditures
Sectoral level:   •         Revealed Comparative           •   Investment flows (FDI)
                            Advantage - RCA                •   Innovation Potential
                  •         Productivity / Profitability       (Patents)

                  •        Real Exchange Rate
                  •        Terms of Trade                  •   Labour unit costs
                  •        Constant Market Shares (CMS)    •   R&D expenditures
National level:   •        Productivity                    •   Investment Flows (FDI)
                  •        Per Capita Income               •   Innovation Potential
                  •        Balance of Current Account
Indicators (2): Country Level
                        Indicators: RCA

Revealed Comparative Advantage – RCA (Balassa 1965)
3. CGE Implementation
  Application: EU Leadership in Climate Policy
 • Unilateral EU carbon emission constraints (e.g. EU-ETS)
 • Impacts on international competitiveness
 • Global environmental effectiveness (carbon leakage)

Policy implementation:

• Alternative emission reduction targets:
  - 5,10,15, 20, 25, 30% cutback of CO2 emissions compared to BaU

• Endogenous tax differentiation:
  - Tax rates discriminated in favour of carbon-intensive industries
  - Tax ratios between other sectors and carbon-intensive industries:
    1 (uniform), 2, 5, 10, 20, inf (exemptions)
    Parameterization of Static PACE Version

Data base of global economy: GTAP V6
• Base year: 2001
• Coverage: 87 regions, 57 sectors, 5 factors

Stylized Model Structure
Results (1): Welfare
Results (2): Differentiated Carbon Values
Results (3): Terms-of-Trade
Results (4): Output of Carbon-intensive Industries (EIS)
Results (5): Output of Other Industries (OTH)
Results (6): RCA Change for Carbon-intensive Industries (EIS)
Results (7): RCA Change for Carbon-intensive Industries (EIS)
Results (8): Excess Cost of Tax Differentiation
CGE Implementation of selected competitiveness indicators:
• At national level: (Per-capita) income, Terms of Trade, etc.
• At sectoral level: RCA, RWA, etc.

Cautious Use of Competitiveness Indicators:
 • Trade-off between indicator at the same level (e.g. sectors)
 • Trade-off between indicators at different levels (e.g. sector / nation)

“ Competitiveness is a meaningless word when applied to national
  economies. And the obsession with competitiveness is both wrong and
  dangerous”. (P. Krugman (1994), Foreign Affairs, 1-17)

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