1. Trade Dynamics in the Euro Area: A Disaggregated Approach DNB/IMF Workshop Preventing and Correcting Macroeconomic Imbalances in the Euro Area 14 October 2011 Peter Wierts, Henk van Kerkhoff, Jakob de Haan

2. Motivation Literature on persistent CA imbalances -Aggregate approach; adjustment real exchange rate Complementary approach -Disaggregated; exports -Competition on global markets  Where is export going? (EMU vs Emerging Markets)  What is being exported? (composition)

3. ULC vs. Export-Performance

4. Outline 1.Literature 2.Export decompositions euro area countries  Partner countries (where?)  Composition (what?) 3.Disaggregated export regressions

5. EMU and Imbalances -Market inflexibility & lack of adjustment capacity  Berger and Nitsch (2010) -No endogenous process towards optimal currency area  Berger and Nitsch (2008); Inklaar et al. (2008); Bednarek et al. (2010) -The credit boom and capital flows  Jaumotte and Sodsriwiboon (2010), Giavazzi and Spaventa (2010), Lane (2010) -Trade vis-à-vis rest of the world; export & disaggregated regressions  Chen et al. (2010), Flam and Nordström (2003)

6. Export composition: Technology Intensity (OECD) High technology industries Aircraft and spacecraft Pharmaceuticals Office, accounting and computing machinery Radio, TV and communications equipment; Medical, precision and optical instruments Medium-low-technology industries Building and repairing of ships and boats Rubber and plastic products Coke, refined petroleum products and nuclear fuel Other non-metallic mineral products Basic metals and fabricated metal products Medium-high-technology industries Electrical machinery and apparatus, n.e.c. Motor vehicles, trailers and semi-trailers Chemicals excluding pharmaceuticals Railroad and transport equipment, n.e.c. Machinery and equipment, n.e.c. Low-technology industries Manufacturing, n.e.c. Recycling Wood, pulp, paper, paper products, printing and publishing Food products, beverages and tobacco Textiles, textile products, leather and footwear.

7. Geographical Aggregates Core Austria, Belgium, France, Germany, Luxembourg, Netherlands Northern Periphery Finland, Ireland Southern Periphery Greece, Italy, Portugal, Spain Rest Industrialized World Australia, Canada, Denmark, Japan, Korea, New Zealand, Norway, Sweden, Switzerland, UK, US Emerging Markets Brazil, China, Czech Rep.*, Hong Kong, Hungary, India, Poland, Russian Fed.**, Slovak Rep.*, Slovenia Rest of the world * Before 2003: Former Czechoslovakia. ** Before 2002: Former USSR.

8. Trade Imbalance for Euro-Area Regions

9. Partner countries: Core

10. Partner countries: Southern-periphery

11. Partner countries: Northern-periphery

12. Core and Southern Periphery (%GDP)

13. Export composition: Core

14. Composition: Southern-periphery

15. Composition: Northern-periphery

16. Hypotheses export performance Export composition may matter: -Impact real exchange rate decreases with technology intensity -Impact real partner income increases with technology intensity Baseline specification:

17. Total Exports, all Euro Area Countries

18. Long-run coefficients by Export categories

19. Export categories, excluding NL & BE, long-run coefficients

20. Total exports for country groups, long-run coefficients

21. Conclusion – Imbalances in EMU Structural differences in export composition Core: higher share of high tech than southern periphery, and increasing Differences in direction of trade Export southern periphery less oriented to core, more inside Core more oriented towards emerging markets Differences in export regressions Export composition matters Policies Structural development: increasing technology intensity takes time Southern periphery: relatively strong response to improvement in price competitiveness

22. Long run coefficients

23. Services-component in the Exports of Euro Area Regions