Authors: Maria Bas, Philippe Martin and Thierry Mayer

Non price competitiveness is an important issue for European firms given that they produce in a high wage environment. However, non price competitiveness is difficult to measure, more anyway than price or cost competitiveness. This is true at the firm or at a more aggregate such as sector or country level. Whereas price competitiveness implies low prices,non price competitiveness implies higher demand for a given price. This can come from higher quality, differentiation, better design, brand image, associated services.

This report proposes to use a quality measure which has the advantage of being simple and intuitive. It measures the characteristics of the goods that increase its demand for a given price or similarly that explain why consumers do not decrease their demand even when they have to pay a higher price. This quality measure is based on trade data and can be applied to different sectors and different countries of the EU across time. Our indicator of quality competitiveness seems to be a good proxy of product quality since it is positively correlated with the level of economic development, human capital, physical capital and innovation intensity. Our preliminary results on quality changes across European countries suggest for example that the competitiveness gains of Germany during the 2000-2009 period are, at least in the high-technology (machinery and electronics) sectors we analyze, very much linked to improvement in the quality of goods produced.