Dynamic e ects of changes in cost competitiveness

We study the dynamic effects of relative changes in unit labour costs on export market performance in a panel of 18 manufacturing industries from OECD countries. We find a modest but statistically significant negative effect of increases in unit labour costs on exports. This effect is larger in the euro area and relative changes in labour compensation have a larger impact on exports than relative changes in productivity. We also study the effects of a nationwide competitiveness pact that aimed at reducing relative unit labour costs in Finland. Relative unit labour costs in Finnish manufacturing decreased significantly following the announcement of the pact. We do not find a corresponding significant effect on relative export performance, albeit the analysis is complicated by simultaneous other events affecting exports of Finnish industries.nonPeerReviewe