Competitiveness and export market shares in high tech industries in the US and the EMU countries: A comparative study

This paper aims to analyse the nature of the gap in high tech industries between the United States and the EMU countries, and to investigate the link between cost competitiveness and market share in these industries. We examine the empirical evidence to ascertain whether some tentative conclusions can be drawn regarding the impact of the appreciation of the euro against the dollar on the growth of these industries. We show that there has been a growing gap between the US and the EMU countries in terms of production in the high tech industries since the beginning of 1990s, but that rather surprisingly, this gap is not reflected in the evolution of exports and market share. On the contrary, EMU country high tech exports caught up to US exports and the world market share of the EMU countries has increased. These results are supported by the average rise in the cost-competitiveness of the EMU countries over the period 1988-2002, which is higher than that of the US. In order to appreciate the evolution of cost-competitiveness and its effect on industry growth, we investigate whether export market share is sensitive to cost-competitiveness. Our results show both a contemporaneously positive relationship between relative unit labour cost (RULC) and export market share, supporting the Kaldor paradox; and a negative relationship between RULC and export market share two years later. We conclude first then, that cost-competitiveness, brought about by the exchange rate and labour productivity, affects changes in the market shares of high tech industries; and second, that non-cost competitiveness is also having an effect.