The Dynamics of Product Quality and International Competitiveness

IMF Working Papers, April 1, 2007

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Title: The Dynamics of Product Quality and International Competitiveness
Authors: Ashoka Mody, Deniz O Igan, Stefania Fabrizio
Date: April 1, 2007
Core question: How did the eight Central and Eastern European countries (the CEE-8) achieve a decade of impressive export growth despite appreciation of the exchange rate, and will the factors behind that growth persist?

Despite exchange rate appreciation, the CEE-8 (the eight Central and Eastern European countries that entered the European Union in May 2004) achieved a decade of impressive export growth and expanded significantly their shares of world markets.
Building from data at the six-digit level of disaggregation, the CEE-8 made an impressive shift in product quality and in the technological intensity of exports.
The structural transformation toward higher-quality and more technologically intensive exports was associated with increased market share.
The analysis strongly suggests that, in international markets, countries benefit from higher product quality.
While structural transformation materially raised market shares, the paper concludes that the easy gains from this process may be over.

Data granularity: six-digit level of disaggregation.
Focus: shifts in product quality and technological intensity of exports, and their association with market share changes.
Subject tags used by the paper: Export performance, Exports, Real effective exchange rates, Real exchange rates, Technology.
Keywords: export share, market share gain, product quality, quality products, unit value, WP.

Product quality improvements and a shift toward higher technological intensity can compensate for adverse real exchange rate developments in supporting export performance.
Structural transformation into higher-quality, higher-tech exports is a key driver of market share gains.
Cautionary implication: the easy gains from structural transformation may have been exhausted, implying that sustaining export growth may require additional sources of competitiveness beyond past shifts in product quality.