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Giorgio Barba Navaretti Banca d’Italia, Convegno su ‘Tendenze nel sistema produttivo italiano’

Discussion on The Euro and the Competitiveness ofEuropean Firms By Ottaviano, Taglioni and Di Mauro. Giorgio Barba Navaretti Banca d’Italia, Convegno su ‘Tendenze nel sistema produttivo italiano’ Roma, 27/11/08. What does this paper do?.

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Giorgio Barba Navaretti Banca d’Italia, Convegno su ‘Tendenze nel sistema produttivo italiano’

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  1. Discussion on The Euro and the Competitiveness ofEuropean FirmsBy Ottaviano, Taglioni and Di Mauro Giorgio Barba Navaretti Banca d’Italia, Convegno su ‘Tendenze nel sistema produttivo italiano’ Roma, 27/11/08

  2. What does this paper do? • Simulate the effects of changes in currency regime (introducing or dropping the Euro) on the international competitiveness of European firms => countries/industries • Setting: • monopolistic competition; • heterogeneous firms; • positive entry costs; • Positive delivery costs; • Key indicator of industry performance: • Cut off marginal cost: =>Maximum marginal cost that can be sustained by firms in the market • Engine: • Size of the market: • In larger mkts tougher competition, lower mark ups • Firms must achieve larger scale of operations to break even • Euro: Instrument of trade liberalisation

  3. Effects of the Euro Cut off export post euro Lower delivery costs Higher expected profits Cut off export pre euro Fixed entry cost Cut off pre euro Cut off costs Cut off post euro

  4. Euro: really trade liberalisation? • Careful: single currency not necessarily equivalent to trade liberalisation • Within area: no more scope for asymmetric competitive devaluations • Asymmetric market enlargement • Euro area: equivalent to regional integration? • Exchange rate fluctuations affect trade costs for outsiders • Effects on outsiders (see scenario 2,uk, dk and sw) different depending on the level of the Euro • And trade creation and diversion? • Euro or single market?

  5. Who wins? The strong or the weak ones? • Implications: • EMU irrelevant for Italy and Spain • Entry small effects for UK • Why weaker countries unaffected by change in currency regime? • Within the integrated market we would expect firms of weaker countries concentrated in the lower tail of the distribution • Something unclear in the interaction between k (sensitivity to firm selection alias elasticity of the extensive margin) with c (cost cut offs) or periphery effect tto strong • Eg. Textile in Italy • Dynamics of k?

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