Overlooked in the Debate? Non-Price Competitiveness in the Five Largest Euro Area Countries

This paper obtains a comprehensive measure of non-price competitiveness factors (NPCFs)based on a simple international trade model. Trade frictions are reinterpreted as the NPCF'sconditions (inferior product quality, and suboptimal geographical and industry specializationof exports) that inhibit trade. The setup is applied to the five largest Euro Area economiesfor the period 2000-2017. NPCF have improved significantly in the Netherlands and Spain,mildly in Italy and Germany, and mildly worsened in France. This result helps explain theSpanish 'paradox'. It also suggests that the conventional North-South divide in the Euro Areamight not be entirely applicable regarding NPCF