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Q-Tool Extension: Competitiveness

Q-Tool Extension: Competitiveness. 1. Agenda 2. Definitions and Indicators 3. CGE Implementation 4. Conclusions. 1. Agenda. Agenda. Firm level (cost structure, innovation potential, ...) Sectoral level (market shares, mark-ups, ...) Country level (terms-of-trade,...).

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Q-Tool Extension: Competitiveness

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  1. Q-Tool Extension: Competitiveness 1. Agenda 2. Definitions and Indicators 3. CGE Implementation 4. Conclusions

  2. 1. Agenda

  3. Agenda • Firm level (cost structure, innovation potential, ...) • Sectoral level (market shares, mark-ups, ...) • Country level (terms-of-trade,...) Specification of „Competitiveness“ • Input/output-based indicators • Data availability Review of existing indicator systems Compatibility with quantitative modeling framework • Implementation of indicators in CGE core-model • Illustrative policy application • (here: EU leadership in climate policy)

  4. 2. Definitions and Indicators

  5. 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)

  6. Indicators (1) “ex-post” “ex-ante” Input / Policy Based on: Output / Performance • R&D Expenditures • Stock of Human Capital • Cost Structure • Innovation Potential • Market share • Profitability • Productivity Firm level: • (Relative) market shares - RMS • Revealed Comparative Advantage - RCA • Productivity / Profitability • R&D expenditures • Investment flows (FDI) • Innovation Potential (Patents) Sectoral level: • Real Exchange Rate • Terms of Trade • Constant Market Shares (CMS) • Productivity • Per Capita Income • Balance of Current Account • Labour unit costs • R&D expenditures • Investment Flows (FDI) • Innovation Potential National level:

  7. Indicators (2): Country Level

  8. Indicators: RCA Revealed Comparative Advantage – RCA (Balassa 1965)

  9. 3. CGE Implementation

  10. Application: EU Leadership in Climate Policy Issue: • 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)

  11. Parameterization of Static PACE Version Data base of global economy: GTAP V6 • Base year: 2001 • Coverage: 87 regions, 57 sectors, 5 factors Aggregation:

  12. Stylized Model Structure

  13. Results (1): Welfare

  14. Results (2): Differentiated Carbon Values

  15. Results (3): Terms-of-Trade

  16. Results (4): Output of Carbon-intensive Industries (EIS)

  17. Results (5): Output of Other Industries (OTH)

  18. Results (6): RCA Change for Carbon-intensive Industries (EIS)

  19. Results (7): RCA Change for Carbon-intensive Industries (EIS)

  20. Results (8): Excess Cost of Tax Differentiation

  21. Conclusions 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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