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Is Austria’s economy locked-in in the CESEE region? Austria’s competitiveness at the micro-level

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Abstract

This paper analyses the competitiveness of Austrian manufacturing industries by comparing the performance of Austrian firms with the Western European firms using recent estimates of total factor productivity (TFP) across Wider Europe (EU-28 plus Western Balkans) during the period 2007–2015. According to the TFP estimates, Austrian firms with larger turnovers, and less employment, in regions with less regional-industrial concentration of labour have become more competitive in terms of TFP. Using firm’s TFP and other characteristics aggregated by industries across Wider Europe, a structural gravity model for exports is estimated. In line with the Ricardian models of trade and new trade theories, results show that larger trade across countries in the sample is driven by intra-firm trade, and comparative advantages that are measured as better efficiency of industries in terms of simple average of TFP growth of firms and more allocation of capital to more efficient firms. Comparing the actual values of exports from Austria to Central, East and Southeast Europe (CESEE) with the counterfactual predicted values of the structural gravity model, I find that since 2012 excessive exports were directed to Western Europe rather than to CESEE. In a robustness check using unilateral exports value, these interesting findings also confirmed that a potential Austrian lock-in effect in the CESEE region reversed and trade diverged to the more competitive market of Western Europe.

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Fig. 1

Source: Own calculation from Model 3 in Table 1

Fig. 2

Source: Own calculation from Model 3 in Table 1

Fig. 3

Source: Own calculation from Model 3 in Table 1

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Notes

  1. For instance read the opening remarks by the Governor of the Austrian Central Bank, Ewald Nowotny, at the Conference on European Economic Integration (CEEI) held in November 2014 in Vienna: https://www.oenb.at/Geldpolitik/Schwerpunkt-Zentral-Ost-und-Suedosteuropa-CESEE/Conference-on-European-Economic-Integration-CEEI.html.

  2. In this research, Central Eastern Member States of the EU (EU-CEE) plus Bosnia and Herzegovina, Macedonia, Montenegro, and Serbia are included in the sample of CESEE.

  3. https://www.ecb.europa.eu/press/key/date/2012/html/sp121130.en.html.

  4. These results are available upon request.

  5. Dhyne et al. (2014) have done a similar exercise but across 11 European countries.

  6. \(23.37 = 100 \times \left( {e^{0.21} - 1} \right)\).

  7. It is important to note that the variable \(\Delta \overline{{\varphi_{jct} }}\) is included in growth terms using the firm-level data, while labour productivity is included at level and it is based on sectoral data, rather than firm-level data.

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Acknowledgements

Research for this paper was financed by the Anniversary Fund of Oesterreichische Nationalbank (Project No. 17037). Financial support provided by Oesterreichische Nationalbank for this research is gratefully acknowledged.

Special thanks should go to Vasily Astrov, Loredan Fattorini, Mario Holzner, Michael Landesmann, Sandor Richter, Armando Rungi, Robert Stehrer, and Roman Stöllinger for their suggestions and constructive comments during the preparation of this work.

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    Mahdi Ghodsi

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Ghodsi, M. Is Austria’s economy locked-in in the CESEE region? Austria’s competitiveness at the micro-level. Empirica 47, 669–693 (2020). https://doi.org/10.1007/s10663-019-09451-8

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